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Equality of Opportunity, Moral Hazard and the Timing of Luck

Listed author(s):
  • Lefranc, Arnaud

    ()

    (University of Cergy-Pontoise)

  • Trannoy, Alain

    ()

    (EHESS, Paris)

Registered author(s):

    Equality of opportunity is usually defined as a situation where the effect of circumstances on outcome is nullified (compensation principle) and effort is rewarded (reward principle). We propose a new version of the reward principle based on the idea that effort deserves reward for it is costly. We show that luck can be introduced in two ways in the definition of these principles, depending on whether the correlation between luck and circumstances should be nullified and whether the correlation between luck and effort should be rewarded. In this regard, the timing of luck with respect to effort decisions is crucial, as is exemplified by moral hazard where effort choice influences the lottery of future uncertain events.

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    File URL: http://ftp.iza.org/dp10645.pdf
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    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 10645.

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    Length: 39 pages
    Date of creation: Mar 2017
    Handle: RePEc:iza:izadps:dp10645
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    1. Daniel Kahneman & Peter P. Wakker & Rakesh Sarin, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 375-406.
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    8. Lefranc, Arnaud & Pistolesi, Nicolas & Trannoy, Alain, 2009. "Equality of opportunity and luck: Definitions and testable conditions, with an application to income in France," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1189-1207, December.
    9. Hamermesh, Daniel S & Biddle, Jeff E, 1994. "Beauty and the Labor Market," American Economic Review, American Economic Association, vol. 84(5), pages 1174-1194, December.
    10. W Henry Chiu, 2010. "Skewness Preference, Risk Taking and Expected Utility Maximisation," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 35(2), pages 108-129, December.
    11. Xavier Ramos & Dirk gaer, 2016. "Approaches To Inequality Of Opportunity: Principles, Measures And Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 30(5), pages 855-883, December.
    12. Robert H. Frank, 2016. "Success and Luck: Good Fortune and the Myth of Meritocracy," Economics Books, Princeton University Press, edition 1, number 10663, 09-2014.
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