Equity in economic relationships: Towards a positive theory

A new theory of ‘equity’ in economic relationships has begun to develop. The theory is consistent with conventional assumptions such as rationality and self-interest, but it explains phenomena that have baffled orthodox microeconomics. Productivity variation by workers in response to perceived inequity can cause wage stickiness and the persistence of inefficient wage structures. Studies by economists and social psychologists provide empirical support. Potentially, the theory is a rich one, having implications for areas such a welfare economics and the microfoundations of macroeconomics.