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A fair solution to the compensation problem

  • Giacomo Valletta


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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Article provided by Springer in its journal Social Choice and Welfare.

Volume (Year): 32 (2009)
Issue (Month): 3 (March)
Pages: 455-478

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Handle: RePEc:spr:sochwe:v:32:y:2009:i:3:p:455-478
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  1. Roland Iwan Luttens & Erwin Ooghe, 2007. "Is it Fair to 'Make Work Pay'?," Economica, London School of Economics and Political Science, vol. 74(296), pages 599-626, November.
  2. 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.
  3. Marc Fleurbaey & Fran�ois Maniquet, 2006. "Fair Income Tax," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 55-83.
  4. M. Fleurbaey & F. Maniquet, 2008. "Fair social orderings," Economic Theory, Springer, vol. 34(1), pages 25-45, January.
  5. Maniquet, Francois & Sprumont, Yves, 2005. "Welfare egalitarianism in non-rival environments," Journal of Economic Theory, Elsevier, vol. 120(2), pages 155-174, February.
  6. Marc Fleurbaey & François Maniquet, 2006. "Compensation and responsibility," Working Papers halshs-00121367, HAL.
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