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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. 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.
    2. Marc Fleurbaey, 2001. "The Pazner-Schmeidler Social Ordering: A Defense," Working Papers 328, Bielefeld University, Center for Mathematical Economics.
    3. Marc Fleurbaey & Fran�ois Maniquet, 2006. "Fair Income Tax," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 55-83.
    4. Hammond, Peter J, 1976. "Equity, Arrow's Conditions, and Rawls' Difference Principle," Econometrica, Econometric Society, vol. 44(4), pages 793-804, July.
    5. 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.
    6. M. Fleurbaey & F. Maniquet, 2008. "Fair social orderings," Economic Theory, Springer, vol. 34(1), pages 25-45, January.
    7. FLEURBAEY, Marc & MANIQUET, François, . "Fair social orderings when agents have unequal production skills," CORE Discussion Papers RP -1805, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. MANIQUET, François & SPRUMONT, Yves, . "Welfare egalitarianism in non-rival environments," CORE Discussion Papers RP -1826, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    9. Francois Maniquet, 2002. "On the Equivalence between Welfarism and Equality of Opportunity," Economics Working Papers 0022, Institute for Advanced Study, School of Social Science.
    10. FLEURBAEY, Marc & MANIQUET, François, . "Compensation and responsibility," CORE Discussion Papers RP -2284, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. 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.
    12. Elisha A. Pazner & David Schmeidler, 1975. "Egalitarian Equivalent Allocations: A New Concept of Economic Equity," Discussion Papers 174, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    13. Thomson, W., 1996. "Consistent Allocation Rules," RCER Working Papers 418, University of Rochester - Center for Economic Research (RCER).
    14. Fleurbaey Marc, 1995. "Three Solutions for the Compensation Problem," Journal of Economic Theory, Elsevier, vol. 65(2), pages 505-521, April.
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