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Equality of opportunity and optimal effort decision under uncertainty

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  • Aitor Calo

    (Universidad de Alicante)

Abstract

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.

Suggested Citation

  • Aitor Calo, 2009. "Equality of opportunity and optimal effort decision under uncertainty," Working Papers. Serie AD 2009-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasad:2009-12
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2009-12.pdf
    File Function: Fisrt version / Primera version, 2009
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    References listed on IDEAS

    as
    1. 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.
    2. Peragine, Vito & Serlenga, Laura, 2007. "Higher Education and Equality of Opportunity in Italy," IZA Discussion Papers 3163, Institute for the Study of Labor (IZA).
    3. Peragine, Vitorocco, 2002. "Opportunity egalitarianism and income inequality," Mathematical Social Sciences, Elsevier, vol. 44(1), pages 45-64, September.
    4. Roemer, J.E., 1992. "A Pragmatic Theory of Responsibility for the Egalitarian Planner," Papers 391, California Davis - Institute of Governmental Affairs.
    5. Villar Notario Antonio & Calo-Blanco Aitor, 2009. "Education, Utilitarianism, and Equality of Opportunity," Working Papers 201051, Fundacion BBVA / BBVA Foundation.
    6. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Equality of opportunity; effort decision; policy design; luck;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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