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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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    Web page: http://www.uclouvain.be/econ
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    1. François Maniquet, 2004. "On the equivalence between welfarism and equality of opportunity," Social Choice and Welfare, Springer, vol. 23(1), pages 127-147, 08.
    2. Marc Fleurbaey & François Maniquet, 2006. "Compensation and responsibility," Working Papers halshs-00121367, HAL.
    3. 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).
    4. Pazner, Elisha A & Schmeidler, David, 1978. "Egalitarian Equivalent Allocations: A New Concept of Economic Equity," The Quarterly Journal of Economics, MIT Press, vol. 92(4), pages 671-87, November.
    5. FLEURBAEY, Marc & MANIQUET, François, . "Fair social orderings when agents have unequal production skills," CORE Discussion Papers RP -1805, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. FLEURBAEY, Marc & MANIQUET, François, . "Fair social orderings," CORE Discussion Papers RP -1995, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Thomson, W., 1996. "Consistent Allocation Rules," RCER Working Papers 418, University of Rochester - Center for Economic Research (RCER).
    8. Marc Fleurbaey & Francois Maniquet, 2002. "Fair Income Tax," Economics Working Papers 0021, Institute for Advanced Study, School of Social Science.
    9. Marc Fleurbaey, 2005. "The Pazner-Schmeidler social ordering: A defense," Review of Economic Design, Springer, vol. 9(2), pages 145-166, 04.
    10. Fleurbaey Marc, 1995. "Three Solutions for the Compensation Problem," Journal of Economic Theory, Elsevier, vol. 65(2), pages 505-521, April.
    11. d'Aspremont, Claude & Gevers, Louis, 1977. "Equity and the Informational Basis of Collective Choice," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 199-209, June.
    12. Hammond, Peter J, 1976. "Equity, Arrow's Conditions, and Rawls' Difference Principle," Econometrica, Econometric Society, vol. 44(4), pages 793-804, July.
    13. François Maniquet & Yves Sprumont, 2004. "Fair Production and Allocation of an Excludable Nonrival Good," Econometrica, Econometric Society, vol. 72(2), pages 627-640, 03.
    14. Dirk Van de gaer & Marc Fleurbaey & Walter Bossert, 1999. "Responsibility, talent, and compensation: A second-best analysis," Review of Economic Design, Springer, vol. 4(1), pages 35-55.
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