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Incomplete Social Contracts

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  • Philippe Aghion

    (Harvard University and University College London,)

  • Patrick Bolton

    (Princeton University,)

Abstract

There is a long normative 'Social Contract' tradition that attempts to characterize ex-post income inequalities that are agreeable to all 'behind a veil of ignorance.' This paper takes a similar normative approach to characterize social decision-making procedures. It is shown that quite generally some form of majority-voting is preferred to unanimity 'behind a veil of ignorance' whenever society faces deadweight costs in making compensating transfers. Deviations from unanimity (or ex-post Pareto optimality) are exante efficient to the extent that they economize on costly compensating transfers. Put another way, the optimal decision rule trades off the benefits of minority protection and those from greater flexibility. (JEL: H11, G33, G34, D63, P16, P48) Copyright (c) 2003 The European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 1 (2003)
Issue (Month): 1 (03)
Pages: 38-67

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Handle: RePEc:tpr:jeurec:v:1:y:2003:i:1:p:38-67

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  1. Casella, Alessandra, 2005. "Storable votes," Games and Economic Behavior, Elsevier, vol. 51(2), pages 391-419, May.
  2. Torsten Persson & Guido Tabellini, . "Political Economics and Public Finance," Working Papers 149, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Hans Gersbach, 2002. "Democratic Mechanisms: Double Majority Rules and Flexible Agenda Costs," CESifo Working Paper Series 749, CESifo Group Munich.
  4. Torsten Persson & Guido Tabellini, 1997. "Political Economics and Macroeconomic Policy," NBER Working Papers 6329, National Bureau of Economic Research, Inc.
  5. Ulrich Erlenmaier & Hans Gersbach, 2001. "Flexible Majority Rules," CESifo Working Paper Series 464, CESifo Group Munich.
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