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A fair solution to the compensation problem

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  • VALLETTA, Giacomo

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

Abstract

We study equity in economies where agents are endowed with different, non transferable, personal talents. To compensate them for such differences a given amount of money needs to be shared among them. We axiomatize a family of social orderings over allocations based on efficiency, fairness and robustness properties. Taking into account incentive constraints we derive the optimal policy: individuals with the same talent need to be equally compensated and only people whose level of talent is below a certain threshold should receive a positive compensation.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2007077.

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Date of creation: 01 Sep 2007
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Handle: RePEc:cor:louvco:2007077

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Related research

Keywords: compensation; talents; fairness; axioms; social orderings; incentive- compatibility;

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References

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  1. Francois Maniquet & Yves Sprumont, 2002. "Fair Production and Allocation of an Excludable Nonrival Good," Economics Working Papers 0014, Institute for Advanced Study, School of Social Science.
  2. Marc Fleurbaey, 2005. "The Pazner-Schmeidler social ordering: A defense," Review of Economic Design, Springer, vol. 9(2), pages 145-166, 04.
  3. Marc Fleurbaey & Francois Maniquet, 2002. "Fair Income Tax," Economics Working Papers 0021, Institute for Advanced Study, School of Social Science.
  4. Marc Fleurbaey & François Maniquet, 2006. "Compensation and responsibility," Working Papers halshs-00121367, HAL.
  5. Pazner, Elisha A & Schmeidler, David, 1978. "Egalitarian Equivalent Allocations: A New Concept of Economic Equity," The Quarterly Journal of Economics, MIT Press, vol. 92(4), pages 671-87, November.
  6. Roland Iwan Luttens & Erwin Ooghe, 2007. "Is it Fair to 'Make Work Pay'?," Economica, London School of Economics and Political Science, vol. 74(296), pages 599-626, November.
  7. repec:bla:restud:v:73:y:2006:i:1:p:55-83 is not listed on IDEAS
  8. Maniquet, Francois & Sprumont, Yves, 2005. "Welfare egalitarianism in non-rival environments," Journal of Economic Theory, Elsevier, vol. 120(2), pages 155-174, February.
  9. Dirk Van de gaer & Marc Fleurbaey & Walter Bossert, 1999. "Responsibility, talent, and compensation: A second-best analysis," Review of Economic Design, Springer, vol. 4(1), pages 35-55.
  10. Francois Maniquet, 2002. "On the Equivalence between Welfarism and Equality of Opportunity," Economics Working Papers 0022, Institute for Advanced Study, School of Social Science.
  11. Fleurbaey Marc, 1995. "Three Solutions for the Compensation Problem," Journal of Economic Theory, Elsevier, vol. 65(2), pages 505-521, April.
  12. Marc Fleurbaey & François Maniquet, 2005. "Fair social orderings when agents have unequal production skills," Social Choice and Welfare, Springer, vol. 24(1), pages 93-127, 09.
  13. d'Aspremont, Claude & Gevers, Louis, 1977. "Equity and the Informational Basis of Collective Choice," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 199-209, June.
  14. Thomson, W., 1996. "Consistent Allocation Rules," RCER Working Papers 418, University of Rochester - Center for Economic Research (RCER).
  15. M. Fleurbaey & F. Maniquet, 2008. "Fair social orderings," Economic Theory, Springer, vol. 34(1), pages 25-45, January.
  16. Hammond, Peter J, 1976. "Equity, Arrow's Conditions, and Rawls' Difference Principle," Econometrica, Econometric Society, vol. 44(4), pages 793-804, July.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Leitura do dia
    by Erik Figueiredo in Moral Hazard on 2011-03-25 18:09:00
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Cited by:
  1. CALO-BLANCO, Aitor, 2012. "The compensation problem with fresh starts," CORE Discussion Papers 2012036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Valletta Giacomo, 2012. "Health, Fairness and Taxation," Research Memoranda 017, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
  3. CALO-BLANCO, Aitor, 2012. "Responsibility, freedom, and forgiveness in health care," CORE Discussion Papers 2012004, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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