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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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Paper provided by University of Bonn, Center for Development Research (ZEF) in its series Discussion Papers with number 162881.

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Date of creation: 24 Jan 2014
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Handle: RePEc:ags:ubzefd:162881

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Keywords: Maximization of social welfare; Rawlsian social welfare function; Utilitarian social welfare function; Deadweight loss; Distaste for low relative income; Institutional and Behavioral Economics; Labor and Human Capital; D31; D60; H21; I38;

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  1. Stark, Oded, 2013. "Stressful Integration," Discussion Papers 150233, University of Bonn, Center for Development Research (ZEF).
  2. Antonio Cabrales & Olivier Gossner & Roberto Serrano, 2011. "Entropy and the value of information for investors," PSE Working Papers halshs-00648884, HAL.
  3. Rawls, John, 1974. "Some Reasons for the Maximin Criterion," American Economic Review, American Economic Association, vol. 64(2), pages 141-46, May.
  4. Stark, Oded & Hyll, Walter & Wang, Yong, 2011. "Endogenous Selection of Comparison Groups, Human Capital Formation, and Tax Policy," Discussion Papers 99415, University of Bonn, Center for Development Research (ZEF).
  5. Stark, Oded & Fan, C. Simon, 2011. "Migration for degrading work as an escape from humiliation," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 241-247, March.
  6. Daniel J. ZIZZO & Andrew J. OSWALD, 2001. "Are People Willing to Pay to Reduce Others'Incomes?," Annales d'Economie et de Statistique, ENSAE, issue 63-64, pages 39-65.
  7. David Card & Alex Mas & Enrico Moretti & Emmanuel Saez, 2010. "Inequality at Work: The Effect of Peer Salaries on Job Satisfaction," Working Papers 1269, Princeton University, Department of Economics, Industrial Relations Section..
  8. 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 20362, University of Munich, Department of Economics.
  9. C. Simon Fan & Oded Stark, 2011. "A Theory Of Migration As A Response To Occupational Stigma," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 549-571, 05.
  10. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309.
  11. Blanchflower, David G. & Oswald, Andrew J., 2007. "Hypertension and Happiness across Nations," The Warwick Economics Research Paper Series (TWERPS) 792, University of Warwick, Department of Economics.
  12. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers 10667, National Bureau of Economic Research, Inc.
  13. Ireland, N. J., 2001. "Optimal income tax in the presence of status effects," Journal of Public Economics, Elsevier, vol. 81(2), pages 193-212, August.
  14. Hammond, Peter J., 1977. "Dual interpersonal comparisons of utility and the welfare economics of income distribution," Journal of Public Economics, Elsevier, vol. 7(1), pages 51-71, February.
  15. 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.
  16. Sorger, Gerhard & Stark, Oded, 2013. "Income redistribution going awry: The reversal power of the concern for relative deprivation," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 1-9.
  17. Stark, Oded & Taylor, J Edward, 1991. "Migration Incentives, Migration Types: The Role of Relative Deprivation," Economic Journal, Royal Economic Society, vol. 101(408), pages 1163-78, September.
  18. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-16, March.
  19. Yaari, Menahem E., 1981. "Rawls, edgeworth, shapley, nash: Theories of distributive justice re-examined," Journal of Economic Theory, Elsevier, vol. 24(1), pages 1-39, February.
  20. Boskin, Michael J & Sheshinski, Eytan, 1978. "Optimal Redistributive Taxation when Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, MIT Press, vol. 92(4), pages 589-601, November.
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