Distributional Comparative Statics

An important set of questions in economics concern how changes in the distribution of economic parameters (income, wealth, productivity, distortions, information, etc.) impact individual choices and market outcomes. We currently do not have tools to answer such questions. In this paper, I develop a theory of distributional comparative statics that addresses this set of issues. Central to the developments is a new concept called strategic risk-aversion which determines the outcome of most distributional comparative statics exercises. As illustrations I analyze the relationship between savings and inequality, ask how risk influences agents’ behavior in Bayesian games, and study concavity of policy functions in general stochastic dynamic programming problems.