Justice and Incentives in a Free Economy

42 Pages Posted: 17 Aug 2021 Last revised: 6 Apr 2022

See all articles by Ghislain Herman Demeze-Jouatsa

Ghislain Herman Demeze-Jouatsa

Center for Mathematical Economics, Bielefeld University

Roland Pongou

University of Ottawa - Department of Economics

Jean-Baptiste Tondji

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American) - Economics and Finance; Department of Economics and Finance, University of Texas Rio Grande Valley

Date Written: July 26, 2021

Abstract

How does fairness affect individual incentives and efficiency in a free economy? We show that elementary principles of distributive justice guarantee the existence of a pure-strategy Nash equilibrium in a finite economy where agents non-cooperatively choose their inputs and derive utility from their pay. Chief among these principles is that your pay should not depend on your name, and a more productive agent should not earn less. When these principles are violated, an equilibrium may not exist. We generalize our analysis to economies with social justice and inclusion, implemented in the form of progressive taxation and redistribution, and guaranteeing a basic income to unproductive agents. In addition, we provide conditions that guarantee equilibrium efficiency. Our study uncovers a new class of strategic form games by incorporating normative principles into non-cooperative game theory. Illustrations include applications to surplus distribution and efficiency-enhancing bonus design in a firm and self-enforcing lockdown in a networked economy facing contagion.

Keywords: Market justice, Social justice, Inclusion, Pure strategy Nash equilibrium, Efficiency

JEL Classification: C72, D30, D63, J71, J38

Suggested Citation

Demeze-Jouatsa, Ghislain Herman and Pongou, Roland and Tondji, Jean-Baptiste, Justice and Incentives in a Free Economy (July 26, 2021). Available at SSRN: https://ssrn.com/abstract=3893929 or http://dx.doi.org/10.2139/ssrn.3893929

Ghislain Herman Demeze-Jouatsa

Center for Mathematical Economics, Bielefeld University ( email )

Universit├Ątsstra├če 25
Bielefeld, NRW 33613
Germany

HOME PAGE: http://https://sites.google.com/view/hdemezejouatsa

Roland Pongou

University of Ottawa - Department of Economics ( email )

200 Wilbrod Street
Ottawa, Ontario K1N 6N5
Canada

Jean-Baptiste Tondji (Contact Author)

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American) - Economics and Finance ( email )

1201 W. University Dr.
Edinburg, TX
United States

Department of Economics and Finance, University of Texas Rio Grande Valley ( email )

1201 W. University Drive
Edinburg, TX 78541
United States
956-665-2825 (Phone)

HOME PAGE: http://https://sites.google.com/site/jbtondjicom

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