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A fair solution to the compensation problem

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Author Info
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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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: 06 Dec 2007
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Handle: RePEc:ctl:louvec:2007038

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

Find related papers by JEL classification:
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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References listed on IDEAS
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  1. Marc Fleurbaey & Francois Maniquet, 2002. "Fair Income Tax," Economics Working Papers 0021, Institute for Advanced Study, School of Social Science. [Downloadable!]
    Other versions:
  2. Thomson, W., 1996. "Consistent Allocation Rules," RCER Working Papers 418, University of Rochester - Center for Economic Research (RCER).
  3. 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. [Downloadable!] (restricted)
    Other versions:
  4. Marc Fleurbaey & François Maniquet, 2006. "Compensation and responsibility," Working Papers halshs-00121367_v1, HAL. [Downloadable!]
  5. M. Fleurbaey & F. Maniquet, 2008. "Fair social orderings," Economic Theory, Springer, vol. 34(1), pages 25-45, January. [Downloadable!] (restricted)
  6. Hammond, Peter J, 1976. "Equity, Arrow's Conditions, and Rawls' Difference Principle," Econometrica, Econometric Society, vol. 44(4), pages 793-804, July. [Downloadable!] (restricted)
  7. Maniquet, Francois & Sprumont, Yves, 2005. "Welfare egalitarianism in non-rival environments," Journal of Economic Theory, Elsevier, vol. 120(2), pages 155-174, February. [Downloadable!] (restricted)
    Other versions:
  8. 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. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  10. François Maniquet, 2004. "On the equivalence between welfarism and equality of opportunity," Social Choice and Welfare, Springer, vol. 23(1), pages 127-147, 08. [Downloadable!] (restricted)
    Other versions:
  11. d'Aspremont, Claude & Gevers, Louis, 1977. "Equity and the Informational Basis of Collective Choice," Review of Economic Studies, Blackwell Publishing, vol. 44(2), pages 199-209, June. [Downloadable!] (restricted)
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