Proceedings of the International Association for Business and Society

Volume 24, 2013

Proceedings of the Twenty-Fourth Annual Meeting

Bryan W. Husted, José Salazar
Pages 94-105

Pricing Social Externalities
The Case of Income Inequality

Using the Theil index to measure income inequality, we define a specific firm’s contribution to overall income inequality and propose a simple model to find the equilibrium price for a given target of income inequality reduction. We first establish income inequality reduction targets for a population of firms. We then model a marginal income inequality reduction cost curve and match demand and supply to derive the equilibrium price. Using a small sample of fifteen firms, we simulate a market for income inequality reduction and calculate the equilibrium price.