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Incomplete Social Contracts

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  • Aghion, Philippe
  • Bolton, Patrick

Abstract

There is a long normative ‘Social Contract’ tradition that attempts to characterize ex-post income inequalities that are agreeable to all ‘behind a veil of ignorance.’ This paper takes a similar normative approach to characterize social decision-making procedures. It is shown that quite generally some form of majority-voting is preferred to unanimity ‘behind a veil of ignorance’ whenever society faces deadweight costs in making compensating transfers. Deviations from unanimity (or ex-post Pareto optimality) are exante efficient to the extent that they economize on costly compensating transfers. Put another way, the optimal decision rule trades off the benefits of minority protection and those from greater flexibility.

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File URL: http://dash.harvard.edu/bitstream/handle/1/4554123/aghion_incompletesocial.pdf
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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4554123.

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Date of creation: 2003
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Publication status: Published in Journal of the European Economic Association
Handle: RePEc:hrv:faseco:4554123

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  1. Persson, Torsten & Tabellini , Guido, 1997. "Political Economics and Macroeconomic Policy," Seminar Papers 630, Stockholm University, Institute for International Economic Studies.
  2. Alessandra Casella, 2002. "Storable votes," Discussion Papers 0102-71, Columbia University, Department of Economics.
  3. Torsten Persson & Guido Tabellini, 1999. "Political Economics and Public Finance," NBER Working Papers 7097, National Bureau of Economic Research, Inc.
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