Welfare Egalitarianism with Other-Regarding Preferences
Discussion Papers on Business and Economics, University of Southern Denmark, 22/2014
33 Pages Posted: 20 Dec 2014
Date Written: December 18, 2014
We study the fair allocation of a one-dimensional and perfectly divisible good when individuals have other-regarding preferences. Assuming no legitimate claims and purely ordinal preferences, how should society measure social welfare so as to satisfy basic principles of efficiency and fairness? We define the egalitarian equivalent as the size of the egalitarian allocation which leaves the individual indifferent to the current allocation. In two simple models of average and positional externalities, we characterize the class of social preferences which give full priority to the individual with the lowest egalitarian equivalent in the economy.
Keywords: Fair allocation, Social welfare, Externalities, Behavioral economics
JEL Classification: D62, D63, D64, D71
Suggested Citation: Suggested Citation