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A fair solution to the compensation problem

  • Giacomo, VALETTA
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    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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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2007-38.pdf
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    Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2007038.

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    Length: 34
    Date of creation: 01 Dec 2007
    Date of revision:
    Handle: RePEc:ctl:louvec:2007038
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    1. d'ASPREMONT, Claude & GEVERS, Louis, . "Equity and the informational basis of collective choice," CORE Discussion Papers RP 350, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. MANIQUET, François & SPRUMONT, Yves, . "Fair production and allocation of an excludable nonrival good," CORE Discussion Papers RP 1735, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. FLEURBAEY, Marc & MANIQUET, François, . "Compensation and responsibility," CORE Discussion Papers RP 2284, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Marc Fleurbaey & François Maniquet, 2006. "Fair Income Tax," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 55-83.
    5. Marc Fleurbaey, 2005. "The Pazner-Schmeidler social ordering: A defense," Post-Print hal-00247024, HAL.
    6. 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, 09.
    7. MANIQUET, François & SPRUMONT, Yves, . "Welfare egalitarianism in non-rival environments," CORE Discussion Papers RP 1826, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. François Maniquet, 2004. "On the equivalence between welfarism and equality of opportunity," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 23(1), pages 127-147, 08.
    9. Fleurbaey Marc, 1995. "Three Solutions for the Compensation Problem," Journal of Economic Theory, Elsevier, vol. 65(2), pages 505-521, April.
    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. Elisha A. Pazner & David Schmeidler, 1975. "Egalitarian Equivalent Allocations: A New Concept of Economic Equity," Discussion Papers 174, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    12. Hammond, Peter J, 1976. "Equity, Arrow's Conditions, and Rawls' Difference Principle," Econometrica, Econometric Society, vol. 44(4), pages 793-804, July.
    13. Dirk Van de gaer & Marc Fleurbaey & Walter Bossert, 1999. "Responsibility, talent, and compensation: A second-best analysis," Review of Economic Design, Springer;Society for Economic Design, vol. 4(1), pages 35-55.
    14. Thomson, W., 1996. "Consistent Allocation Rules," RCER Working Papers 418, University of Rochester - Center for Economic Research (RCER).
    15. Marc Fleurbaey & Maurice Salles & John Weymark, 2008. "Justice, Political Liberalism and Utilitarianism," Post-Print hal-00246415, HAL.
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