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Incomplete Social Contracts

  • Philippe Aghion

    (Harvard University and University College London,)

  • Patrick Bolton

    (Princeton University,)

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. (JEL: H11, G33, G34, D63, P16, P48) Copyright (c) 2003 The European Economic Association.

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Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 1 (2003)
Issue (Month): 1 (03)
Pages: 38-67

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Handle: RePEc:tpr:jeurec:v:1:y:2003:i:1:p:38-67
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  1. Gersbach, Hans, 2005. "Democratic Mechanisms: Double Majority Rules and Flexible Agenda Costs," CEPR Discussion Papers 5013, C.E.P.R. Discussion Papers.
  2. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659 Elsevier.
  3. Alessandra Casella, 2002. "Storable Votes," NBER Working Papers 9189, National Bureau of Economic Research, Inc.
  4. Torsten Persson & Guido Tabellini, . "Political Economics and Macroeconomic Policy," Working Papers 121, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Ulrich Erlenmaier & Hans Gersbach, 2001. "Flexible Majority Rules," CESifo Working Paper Series 464, CESifo Group Munich.
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