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Equality of opportunity and optimal effort decision under uncertainty

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  • Aitor Calo

    (Universidad de Alicante)

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    Abstract

    We analyze a society that cares about inequality of opportunity. We propose adynamic setting in which effort is a decision variable that individuals adopt as asolution of an explicit utility maximization program. Effort determines themonetary outcome and it depends on the individual¿s preferences andcircumstances. The planner designs an incentive scheme so as to foster higherincomes, reducing the opportunity cost of effort and productivity for the lessfavoured agents. Income is assumed to be random, and contrary to the generalneutral assumption, we obtain that luck does have a biased and persistent effect onincome distribution that may be regarded as unfair. We also study the planner¿soptimal policy when she cannot infer perfectly the individuals¿ responsibilityfeature.

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2009-12.pdf
    File Function: Fisrt version / Primera version, 2009
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    Bibliographic Info

    Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2009-12.

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    Length: 34 pages
    Date of creation: Jan 2009
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    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasad:2009-12

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    Related research

    Keywords: Equality of opportunity; effort decision; policy design; luck;

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    1. Arnaud Lefranc & Nicolas Pistolesi & Alain Trannoy, 2006. "Equality of Opportunity: Definitions and testable conditions, with an application to income in France," THEMA Working Papers 2006-13, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    2. Calo-Blanco, Aitor & Villar, Antonio, 2009. "Education, Utilitarianism, and Equality of Opportunity," MPRA Paper 18720, University Library of Munich, Germany.
    3. HOLMSTROM, Bengt, . "Moral hazard and observability," CORE Discussion Papers RP -379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Roemer, J.E., 1992. "A Pragmatic Theory of Responsibility for the Egalitarian Planner," Papers 391, California Davis - Institute of Governmental Affairs.
    5. Peragine, Vitorocco, 2002. "Opportunity egalitarianism and income inequality," Mathematical Social Sciences, Elsevier, vol. 44(1), pages 45-64, September.
    6. Laura Serlenga & Vito Peragine, 2007. "Higher education and equality of opportunity in Italy," Working Papers 79, ECINEQ, Society for the Study of Economic Inequality.
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