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A fair solution to the compensation problem

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  • Giacomo, VALETTA

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

  • Giacomo, VALETTA, 2007. "A fair solution to the compensation problem," Discussion Papers (ECON - Département des Sciences Economiques) 2007038, Université catholique de Louvain, Département des Sciences Economiques.
    • Handle: RePEc:ctl:louvec:2007038
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    References listed on IDEAS

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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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