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Separable utility and taste-independence: an escape route from the opportunity paradox

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  • Jun Matsui

    (Waseda University)

Abstract

We provide an escape route from the opportunity paradox, which is described as a conflict between the ex ante and the ex post perspectives of compensation, by restricting the preference domain. Taste-independent utility is introduced as a property of preferences such that individuals' maximized utility levels are the same regardless of their tastes for work. Using the optimal income taxation model, we demonstrate that if parametric utility functions are separable in consumption and labor supply, then they are taste-independent. We obtain a compatibility theorem when utility functions are quasilinear in consumption.

Suggested Citation

  • Jun Matsui, 2021. "Separable utility and taste-independence: an escape route from the opportunity paradox," Working Papers 572, ECINEQ, Society for the Study of Economic Inequality.
    • Handle: RePEc:inq:inqwps:ecineq2021-572
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    File URL: http://www.ecineq.org/milano/WP/ECINEQ2021-572.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Opportunity; Compensation; Domain restriction;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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