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Incomplete Social Contracts

Author

Listed:
  • Aghion, Philippe
  • Bolton, Patrick

Abstract

There is a long normative ‘Social Contract’ tradition that attempts to characterize ex-post income inequalities that are agreeable to all ‘behind a veil of ignorance.’ This paper takes a similar normative approach to characterize social decision-making procedures. It is shown that quite generally some form of majority-voting is preferred to unanimity ‘behind a veil of ignorance’ whenever society faces deadweight costs in making compensating transfers. Deviations from unanimity (or ex-post Pareto optimality) are exante efficient to the extent that they economize on costly compensating transfers. Put another way, the optimal decision rule trades off the benefits of minority protection and those from greater flexibility.

Suggested Citation

  • Aghion, Philippe & Bolton, Patrick, 2003. "Incomplete Social Contracts," Scholarly Articles 4554123, Harvard University Department of Economics.
  • Handle: RePEc:hrv:faseco:4554123
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    References listed on IDEAS

    as
    1. Ulrich Erlenmaier & Hans Gersbach, 2001. "Flexible Majority Rules," CESifo Working Paper Series 464, CESifo Group Munich.
    2. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659 Elsevier.
    3. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
    4. Casella, Alessandra, 2005. "Storable votes," Games and Economic Behavior, Elsevier, vol. 51(2), pages 391-419, May.
    5. Hans Gersbach, 2002. "Democratic Mechanisms: Double Majority Rules and Flexible Agenda Costs," CESifo Working Paper Series 749, CESifo Group Munich.
    6. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
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    More about this item

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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