Aversion to Inequality and Segregating Equilibria

This paper shows that models where preferences of individuals depend not only on their allocations, but also on the well-being of other persons, can produce both large and testable eects. We study the allocation of workers with heterogeneous productivities to firms. We show that even small deviations from purely "selfish" preferences leads to widespread workplace skill segregation. That is, workers of dierent abilities tend to work in dierent firms, as long as they care somewhat more about the utilities of