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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," LIDAM Discussion Papers CORE 2007077, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2007077
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    References listed on IDEAS

    as
    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. François Maniquet & Yves Sprumont, 2004. "Fair Production and Allocation of an Excludable Nonrival Good," Econometrica, Econometric Society, vol. 72(2), pages 627-640, March.
    3. 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.
    4. Fleurbaey, Marc, 2012. "Fairness, Responsibility, and Welfare," OUP Catalogue, Oxford University Press, number 9780199653591, Decembrie.
    5. Marc Fleurbaey & François Maniquet, 2006. "Compensation and responsibility," Working Papers halshs-00121367, HAL.
    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. Marc Fleurbaey, 2012. "Three Solutions for the Compensation Problem," World Scientific Book Chapters, in: Equality of Opportunity The Economics of Responsibility, chapter 2, pages 33-51, World Scientific Publishing Co. Pte. Ltd..
    8. Thomson, W., 1996. "Consistent Allocation Rules," RCER Working Papers 418, University of Rochester - Center for Economic Research (RCER).
    9. Marc Fleurbaey & François Maniquet, 2006. "Fair Income Tax," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(1), pages 55-83.
    10. 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.
    11. Marc Fleurbaey, 2005. "Health, Wealth, and Fairness," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(2), pages 253-284, May.
    12. Marc Fleurbaey & Maurice Salles & John A. Weymark, 2008. "Justice, Political Liberalism and Utilitarianism," Post-Print hal-00246415, HAL.
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    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. Rafael Treibich, 2019. "Welfare egalitarianism with other-regarding preferences," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 52(1), pages 1-28, January.
    2. CALO-BLANCO, Aitor, 2012. "Responsibility, freedom, and forgiveness in health care," LIDAM Discussion Papers CORE 2012004, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. CALO-BLANCO, Aitor, 2012. "The compensation problem with fresh starts," LIDAM Discussion Papers CORE 2012036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. 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.
    5. 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.
    6. MANIQUET, François, 2014. "Social ordering functions," LIDAM Discussion Papers CORE 2014051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Valletta, G., 2012. "Health, fairness and taxation," Research Memorandum 017, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

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    More about this item

    Keywords

    compensation; talents; fairness; axioms; social orderings; incentive- compatibility;
    All these keywords.

    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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