Mobility, Entitlement and Perceptions of Inequality

Abstract

This paper proposes a model how individuals form beliefs on inequality based on their own and their family’s experience. A person’s income is determined by their effort and family background. Individuals do not know the true importance of effort in this equation, but estimate it based on their own and their family’s past experience. They overestimate the effort they furnish in the present and the effort their parents furnished in the past. In particular, they estimate that their own effort justifies earning at least their current income but also their parents’ past income, thus feeling entitled to conserve the income level of their family. As a result, individuals’ perception of the importance of effort in determining income differs according to their income mobility history. The contribution of the model is to study the formation of beliefs on inequality more closely than the previous literature and to identify a behavioural channel through which income mobility affects individuals’ perceptions: the channel of “entitlement”. The theoretical model reproduces an empirical phenomenon observed in rural Chhattisgarh, India, namely the way in which individuals’ perceptions on the importance of effort vary with their own current and their family’s past income.