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A fair solution to the compensation problem

Author

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  • VALLETTA, Giacomo

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

Abstract

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.

Suggested Citation

  • VALLETTA, Giacomo, 2007. "A fair solution to the compensation problem," CORE Discussion Papers 2007077, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2007077
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    File URL: http://www.uclouvain.be/cps/ucl/doc/core/documents/coredp2007_77.pdf
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    References listed on IDEAS

    as
    1. François Maniquet & Yves Sprumont, 2004. "Fair Production and Allocation of an Excludable Nonrival Good," Econometrica, Econometric Society, vol. 72(2), pages 627-640, March.
    2. Marc Fleurbaey & François Maniquet, 2005. "Fair social orderings when agents have unequal production skills," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 24(1), pages 93-127, September.
    3. Marc Fleurbaey & François Maniquet, 2006. "Fair Income Tax," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 55-83.
    4. Marc Fleurbaey & François Maniquet, 2006. "Compensation and responsibility," Working Papers halshs-00121367, HAL.
    5. 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.
    6. Maniquet, Francois & Sprumont, Yves, 2005. "Welfare egalitarianism in non-rival environments," Journal of Economic Theory, Elsevier, vol. 120(2), pages 155-174, February.
    7. M. Fleurbaey & F. Maniquet, 2008. "Fair social orderings," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 34(1), pages 25-45, January.
    8. Thomson, W., 1996. "Consistent Allocation Rules," RCER Working Papers 418, University of Rochester - Center for Economic Research (RCER).
    9. Marc Fleurbaey & Maurice Salles & John Weymark, 2008. "Justice, Political Liberalism and Utilitarianism," Post-Print hal-00246415, HAL.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Leitura do dia
      by Erik Figueiredo in Moral Hazard on 2011-03-25 23:09:00

    Citations

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    Cited by:

    1. Treibich, Rafael, 2014. "Welfare Egalitarianism with Other-Regarding Preferences," Discussion Papers of Business and Economics 22/2014, University of Southern Denmark, Department of Business and Economics.
    2. Giacomo Valletta, 2014. "Health, fairness and taxation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 43(1), pages 101-140, June.
    3. MANIQUET, François, 2014. "Social ordering functions," CORE Discussion Papers 2014051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. CALO-BLANCO, Aitor, 2012. "Responsibility, freedom, and forgiveness in health care," CORE Discussion Papers 2012004, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Valletta Giacomo, 2012. "Health, Fairness and Taxation," Research Memorandum 017, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    6. CALO-BLANCO, Aitor, 2012. "The compensation problem with fresh starts," CORE Discussion Papers 2012036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Aitor Calo-Blanco, 2014. "Fairness, freedom, and forgiveness in health care," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 43(1), pages 141-151, June.

    More about this item

    Keywords

    compensation; talents; fairness; axioms; social orderings; incentive- compatibility;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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