Equality of Opportunity, Moral Hazard and the Timing of Luck

39 Pages Posted: 3 Apr 2017

See all articles by Arnaud Lefranc

Arnaud Lefranc

Universite de Cergy-Pontoise

Alain Trannoy

National Center for Scientific Research (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS)

Abstract

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.

Keywords: equality of opportunity, effort, luck, timeline, moral hazard, reward

JEL Classification: D63, J62, C14

Suggested Citation

Lefranc, Arnaud and Trannoy, Alain, Equality of Opportunity, Moral Hazard and the Timing of Luck. IZA Discussion Paper No. 10645. Available at SSRN: https://ssrn.com/abstract=2944547

Arnaud Lefranc (Contact Author)

Universite de Cergy-Pontoise ( email )

33 Boulevard du Port
Cergy-Pontoise Cedex, Cedex 95011
France

Alain Trannoy

National Center for Scientific Research (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) ( email )

54, boulevard Raspail
Paris, 75006
France

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