Education, Distributive Justice and Adverse Selection

40 Pages Posted: 2 Apr 2002

See all articles by Marc Fleurbaey

Marc Fleurbaey

Princeton University - Woodrow Wilson School of Public and International Affairs

Robert J. Gary-Bobo

CREST ENSAE; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Denis Maguain

KU Leuven - Department of Economics; University of Cergy-Pontoise - THEMA

Date Written: April 2002

Abstract

We consider a model of education planning in an economy in which agents differ in their costs of acquiring education. The agents' cost parameter, called "talent," is not observed. The Principal is endowed with a fixed sum of money, with which two types of transfer can be made: in cash and in kind. The Principal can finance transfers in kind, called "help," by means of schooling expenditures, which reduce the agent's education cost. The Principal seeks to maximize a social welfare function which is a CES index of utility levels. We study the optimal allocation of individual education effort, schooling expenditures (help), and cash, under self-selection and budget constraints. Assuming first that the set of types is finite, and that help and effort are sufficiently substitutable, we find that individual education investment levels are an increasing function, and help is a decreasing function of talent. Utility levels cannot be equalized because of self-selection constraints. More aversion for inequality unequivocally leads to more inequality of educational achievements, and to more assistance through redistribution. This remains true in the limit, under strictly egalitarian preferences of the Principal. The same qualitative properties hold in the general case of a continuum of types. Bunching at the lower end of the talent scale is a feature of the solution for sufficiently high degrees of inequality aversion.

Keywords: Talent, help, inequality aversion, effort, redistribution

JEL Classification: D82, H41

Suggested Citation

Fleurbaey, Marc and Gary-Bobo, Robert J. and Maguain, Denis, Education, Distributive Justice and Adverse Selection (April 2002). CEPR Discussion Paper No. 2897. Available at SSRN: https://ssrn.com/abstract=305980

Marc Fleurbaey (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

Robert J. Gary-Bobo

CREST ENSAE ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France
+33141176031 (Phone)

HOME PAGE: http://www.crest.fr/ses.php?user=3042

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Denis Maguain

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium
+33 1 6326 826 (Phone)
+33 1 6326 796 (Fax)

University of Cergy-Pontoise - THEMA

33 boulevard du port
F-95011 Cergy-Pontoise Cedex, 95011
France

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