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Equality of opportunity and optimal effort decision under uncertainty

  • Aitor Calo

    (Universidad de Alicante)

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    We analyze a society that cares about inequality of opportunity. We propose adynamic setting in which effort is a decision variable that individuals adopt as asolution of an explicit utility maximization program. Effort determines themonetary outcome and it depends on the individual¿s preferences andcircumstances. The planner designs an incentive scheme so as to foster higherincomes, reducing the opportunity cost of effort and productivity for the lessfavoured agents. Income is assumed to be random, and contrary to the generalneutral assumption, we obtain that luck does have a biased and persistent effect onincome distribution that may be regarded as unfair. We also study the planner¿soptimal policy when she cannot infer perfectly the individuals¿ responsibilityfeature.

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    Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2009-12.

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    Length: 34 pages
    Date of creation: Jan 2009
    Date of revision:
    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasad:2009-12
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    1. Laura Serlenga & Vito Peragine, 2007. "Higher education and equality of opportunity in Italy," Working Papers 79, ECINEQ, Society for the Study of Economic Inequality.
    2. Arnaud Lefranc & Nicolas Pistolesi & Alain Trannoy, 2006. "Equality of opportunity: Definitions and testable conditions, with an application to income in France," Working Papers 53, ECINEQ, Society for the Study of Economic Inequality.
    3. Peragine, Vitorocco, 2002. "Opportunity egalitarianism and income inequality," Mathematical Social Sciences, Elsevier, vol. 44(1), pages 45-64, September.
    4. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
    5. Roemer, J.E., 1992. "A Pragmatic Theory of Responsibility for the Egalitarian Planner," Papers 391, California Davis - Institute of Governmental Affairs.
    6. Villar Notario Antonio & Calo-Blanco Aitor, 2009. "Education, Utilitarianism, and Equality of Opportunity," Working Papers 201051, Fundacion BBVA / BBVA Foundation.
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