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Reconciling the Rawlsian and the utilitarian approaches to the maximization of social welfare

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  • Stark, Oded
  • Jakubek, Marcin
  • Falniowski, Fryderyk

Abstract

Under a deadweight loss of tax and transfer, there is tension between the optimal policy choices of a Rawlsian social planner and a utilitarian social planner. However, when with a weight greater than a certain critical value the individuals’ utility functions incorporate distaste for low relative income, a utilitarian will select exactly the same income distribution as a Rawlsian.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 122 (2014)
Issue (Month): 3 ()
Pages: 439-444

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Handle: RePEc:eee:ecolet:v:122:y:2014:i:3:p:439-444

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Web page: http://www.elsevier.com/locate/ecolet

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Keywords: Maximization of social welfare; Rawlsian social welfare function; Utilitarian social welfare function; Deadweight loss; Distaste for low relative income;

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  1. Stark, Oded, 2013. "Stressful Integration," Discussion Papers, University of Bonn, Center for Development Research (ZEF) 150233, University of Bonn, Center for Development Research (ZEF).
  2. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 63, pages 309.
  3. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(3), pages 963-1002, August.
  4. Stark, Oded & Fan, Simon C., 2010. "A Theory of Migration as a Response to Occupational Stigma," MPRA Paper 21688, University Library of Munich, Germany.
  5. Sorger, Gerhard & Stark, Oded, 2012. "Income redistribution going awry: The reversal power of the concern for relative deprivation," Discussion Papers, University of Bonn, Center for Development Research (ZEF) 142407, University of Bonn, Center for Development Research (ZEF).
  6. David Card & Alexandre Mas & Enrico Moretti & Emmanuel Saez, 2012. "Inequality at Work: The Effect of Peer Salaries on Job Satisfaction," American Economic Review, American Economic Association, American Economic Association, vol. 102(6), pages 2981-3003, October.
  7. Fliessbach, Klaus & Weber, Bernd & Trautner, P. & Dohmen, Thomas J. & Sunde, Uwe & Elger, C. E. & Falk, Armin, 2007. "Social comparison affects reward-related brain activity in the human ventral striatum," Munich Reprints in Economics, University of Munich, Department of Economics 20362, University of Munich, Department of Economics.
  8. Stark, Oded & Hyll, Walter, 2011. "On the economic architecture of the workplace: Repercussions of social comparisons among heterogeneous workers," MPRA Paper 28910, University Library of Munich, Germany.
  9. Antonio Cabrales & Olivier Gossner & Roberto Serrano, 2011. "Entropy and the value of information for investors," PSE Working Papers halshs-00648884, HAL.
  10. Zizzo, D.J. & Oswald, A., 2000. "Are People Willing to Pay to Reduce Others' Incomes?," The Warwick Economics Research Paper Series (TWERPS) 568, University of Warwick, Department of Economics.
  11. Blanchflower, David G. & Oswald, Andrew J., 2008. "Hypertension and happiness across nations," Journal of Health Economics, Elsevier, Elsevier, vol. 27(2), pages 218-233, March.
  12. Stark, Oded & Hyll, Walter & Wang, Yong, 2011. "Endogenous Selection of Comparison Groups, Human Capital Formation, and Tax Policy," Discussion Papers, University of Bonn, Center for Development Research (ZEF) 99415, University of Bonn, Center for Development Research (ZEF).
  13. Stark, Oded & Fan, C. Simon, 2010. "Migration for degrading work as an escape from humiliation," MPRA Paper 28905, University Library of Munich, Germany.
  14. Stark, Oded & Taylor, J Edward, 1991. "Migration Incentives, Migration Types: The Role of Relative Deprivation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 101(408), pages 1163-78, September.
  15. Yaari, Menahem E., 1981. "Rawls, edgeworth, shapley, nash: Theories of distributive justice re-examined," Journal of Economic Theory, Elsevier, Elsevier, vol. 24(1), pages 1-39, February.
  16. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 101-16, March.
  17. Hammond, Peter J., 1977. "Dual interpersonal comparisons of utility and the welfare economics of income distribution," Journal of Public Economics, Elsevier, Elsevier, vol. 7(1), pages 51-71, February.
  18. Ireland, N. J., 2001. "Optimal income tax in the presence of status effects," Journal of Public Economics, Elsevier, Elsevier, vol. 81(2), pages 193-212, August.
  19. Boskin, Michael J & Sheshinski, Eytan, 1978. "Optimal Redistributive Taxation when Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 92(4), pages 589-601, November.
  20. Rawls, John, 1974. "Some Reasons for the Maximin Criterion," American Economic Review, American Economic Association, American Economic Association, vol. 64(2), pages 141-46, May.
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