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Fairness under Uncertainty

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  • Thibault Gajdos

    ()
    (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - CNRS : UMR8594 - Université Paris I - Panthéon-Sorbonne)

  • Jean-Marc Tallon

    (EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - CNRS : UMR8594 - Université Paris I - Panthéon-Sorbonne)

Abstract

Ever since its introduction by Foley [1967] and Varian [1974], the notion of fairness has been one of the most extensively used notion to evaluate allocations on an ethical basis. Whereas there is an extensive literature on the efficiency properties of allocations in economies with uncertainty the concept of an envy-free allocation has not been widely studied in economies with uncertainty. We introduce two very natural notions of equity in an economy under uncertainty, namely ex ante and ex post equity, show they can contradict efficiency requirements. In particular, the set of ex ante efficient and ex post envy-free allocations may be empty. We nevertheless show that, under special circumstances, one may prove the existence of allocations that are both ex ante efficient and ex post envy-free. Such is the case, in particular, in an economy with individual risk and no aggregate risk.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00086032.

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Date of creation: 2002
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Publication status: Published, Economics Bulletin, 2002, 4, 18, 1-7
Handle: RePEc:hal:cesptp:halshs-00086032

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Keywords: Fairness; uncerainty; envy;

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References

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  1. Malinvaud, E, 1973. "Markets for an Exchange Economy with Individual Risks," Econometrica, Econometric Society, Econometric Society, vol. 41(3), pages 383-410, May.
  2. Varian, Hal R., 1974. "Equity, envy, and efficiency," Journal of Economic Theory, Elsevier, Elsevier, vol. 9(1), pages 63-91, September.
  3. Cass, David & Chichilnisky, Graciela & Wu, Ho-Mou, 1996. "Individual Risk and Mutual Insurance," Econometrica, Econometric Society, Econometric Society, vol. 64(2), pages 333-41, March.
  4. Peter A. Diamond, 1967. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparison of Utility: Comment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 765.
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Cited by:
  1. Chiara Donnini & Maria Graziano & Marialaura Pesce, 2014. "Coalitional fairness in interim differential information economies," Journal of Economics, Springer, Springer, vol. 111(1), pages 55-68, February.
  2. de Clippel, Geoffroy, 2008. "Equity, envy and efficiency under asymmetric information," Economics Letters, Elsevier, Elsevier, vol. 99(2), pages 265-267, May.
  3. Achille Basile & Maria Graziano & Marialaura Pesce, 2014. "On fairness of equilibria in economies with differential information," Theory and Decision, Springer, Springer, vol. 76(4), pages 573-599, April.
  4. Maria Laura Pesce, 2011. "Are Asymmetrically Informed Agents Envious?," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 292, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  5. Chew, Soo Hong & Sagi, Jacob S., 2012. "An inequality measure for stochastic allocations," Journal of Economic Theory, Elsevier, Elsevier, vol. 147(4), pages 1517-1544.

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