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A fair solution to the compensation problem

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  • Giacomo, VALETTA
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    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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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2007-38.pdf
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    Bibliographic Info

    Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2007038.

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    Length: 34
    Date of creation: 01 Dec 2007
    Date of revision:
    Handle: RePEc:ctl:louvec:2007038

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    Related research

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

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    1. FLEURBAEY, Marc & MANIQUET, François, . "Compensation and responsibility," CORE Discussion Papers RP -2284, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Fleurbaey Marc, 1995. "Three Solutions for the Compensation Problem," Journal of Economic Theory, Elsevier, vol. 65(2), pages 505-521, April.
    3. Hammond, Peter J, 1976. "Equity, Arrow's Conditions, and Rawls' Difference Principle," Econometrica, Econometric Society, vol. 44(4), pages 793-804, July.
    4. 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.
    5. Marc Fleurbaey, 2001. "The Pazner-Schmeidler Social Ordering: A Defense," Working Papers 328, Bielefeld University, Center for Mathematical Economics.
    6. 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.
    7. MANIQUET, François & SPRUMONT, Yves, . "Fair production and allocation of an excludable nonrival good," CORE Discussion Papers RP -1735, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Francois Maniquet & Yves Sprumont, 2002. "Welfare Egalitarianism in Non-Rival Environments," Economics Working Papers 0016, Institute for Advanced Study, School of Social Science.
    9. 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.
    10. FLEURBAEY, Marc & MANIQUET, François, . "Fair social orderings," CORE Discussion Papers RP -1995, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. Marc Fleurbaey & Francois Maniquet, 2002. "Fair Income Tax," Economics Working Papers 0021, Institute for Advanced Study, School of Social Science.
    12. François Maniquet, 2004. "On the equivalence between welfarism and equality of opportunity," Social Choice and Welfare, Springer, vol. 23(1), pages 127-147, 08.
    13. Thomson, W., 1996. "Consistent Allocation Rules," RCER Working Papers 418, University of Rochester - Center for Economic Research (RCER).
    14. 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.
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