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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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    1. Marc Fleurbaey & François Maniquet, 2006. "Fair Income Tax," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 55-83.
    2. Marc Fleurbaey & François Maniquet, 2006. "Compensation and responsibility," Working Papers halshs-00121367, HAL.
    3. 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, August.
    4. M. Fleurbaey & F. Maniquet, 2008. "Fair social orderings," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 25-45.
    5. Elisha A. Pazner & David Schmeidler, 1978. "Egalitarian Equivalent Allocations: A New Concept of Economic Equity," The Quarterly Journal of Economics, Oxford University Press, vol. 92(4), pages 671-687.
    6. Marc Fleurbaey, 2005. "The Pazner-Schmeidler social ordering: A defense," Review of Economic Design, Springer;Society for Economic Design, pages 145-166.
    7. Hammond, Peter J, 1976. "Equity, Arrow's Conditions, and Rawls' Difference Principle," Econometrica, Econometric Society, vol. 44(4), pages 793-804, July.
    8. Claude D'Aspremont & Louis Gevers, 1977. "Equity and the Informational Basis of Collective Choice," Review of Economic Studies, Oxford University Press, vol. 44(2), pages 199-209.
    9. Maniquet, Francois & Sprumont, Yves, 2005. "Welfare egalitarianism in non-rival environments," Journal of Economic Theory, Elsevier, vol. 120(2), pages 155-174, February.
    10. François Maniquet & Yves Sprumont, 2004. "Fair Production and Allocation of an Excludable Nonrival Good," Econometrica, Econometric Society, vol. 72(2), pages 627-640, March.
    11. 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, pages 93-127.
    12. 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.
    13. Fleurbaey Marc, 1995. "Three Solutions for the Compensation Problem," Journal of Economic Theory, Elsevier, vol. 65(2), pages 505-521, April.
    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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    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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