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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Bard Harstad, 2006.
"Flexible Integration,"
Discussion Papers
1428, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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