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Inequality and fairness

Author

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  • Christopher Phelan
Abstract
This study uses John Rawls' behind-the-veil of ignorance device as a fairness criterion to evaluate social policies and applies it to a contracting model in which the terms equality of opportunity and equality of result are well defined. The results suggest that fairness and inequality-even extreme inequality-are compatible. In a static world, when incentives must be provided, fairness implies equality of opportunity, but inequality of result. In a dynamic world of long-lived individuals, fairness implies not only inequality of result, but also, eventually, infinite inequality of result. If each period of the dynamic model is interpreted as a generation, then eventual infinite inequality holds for opportunity as well, as long as fairness is from the perspective of the first generation. If preferences of later generations are taken into account, then inequality of opportunity still occurs, although not at extreme levels.

Suggested Citation

  • Christopher Phelan, 2002. "Inequality and fairness," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 26(Spr).
    • Handle: RePEc:fip:fedmqr:y:2002:i:spr:n:v.26no.2:x:1
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    File URL: https://www.minneapolisfed.org/research/qr/qr2621.pdf
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    References listed on IDEAS

    as
    1. Christopher Phelan & Robert M. Townsend, 1991. "Computing Multi-Period, Information-Constrained Optima," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(5), pages 853-881.
    2. Andrew Atkeson & Robert E. Lucas, 1992. "On Efficient Distribution With Private Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(3), pages 427-453.
    3. Andrew Caplin & John Leahy, 2004. "The Social Discount Rate," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1257-1268, December.
    4. Thomas, Jonathan & Worrall, Tim, 1990. "Income fluctuation and asymmetric information: An example of a repeated principal-agent problem," Journal of Economic Theory, Elsevier, vol. 51(2), pages 367-390, August.
    5. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
    6. Stephen E. Spear & Sanjay Srivastava, 1987. "On Repeated Moral Hazard with Discounting," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(4), pages 599-617.
    7. Christopher Phelan, 1994. "Incentives and Aggregate Shocks," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 681-700.
    8. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. What is Fair?
      by Josh in The Everyday Economist on 2014-04-08 00:13:09

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    Cited by:

    1. Christopher Phelan, 2006. "Opportunity and Social Mobility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 487-504.
    2. Juan M. Sánchez, 2003. "Universitary Financing and Welfare: A Dynamic Analysis with Heterogeneous Agents and Overlapping Generations," Department of Economics, Working Papers 047, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.

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