34 Pages Posted: 1 Sep 2004
Social agreement regarding redistribution of wealth is often unattainable because the poor cannot sufficiently compensate the rich for their contribution. In this paper, we submit that under certain circumstances, such an agreement could obtain wide-spread support if, and only if, it contains a clause postponing the implementation of the redistribution of wealth by a given period of time. Thus, despite the fact that consensus on redistribution at the present cannot be attained, society can reach an agreement to redistribute wealth in the future.
We term such an agreement a "deferred-implementation agreement" ("DIA") and focus on two reasons which could explain the appeal of such an agreement. The first reason is that the rich take the possibility into account that they might be compelled to change sides with the poor some time in the future and would become the beneficiaries of the redistribution scheme, rather than its financiers. The second reason is that a DIA entails the externalization of costs to third parties, thereby reducing the costs of the agreement to the contracting parties.
In addition to promoting consensus in society regarding the redistribution of wealth, which might be virtuous in itself, DIAs can also be justified on normative grounds. Firstly, by establishing the possibility of a change of sides, the DIA places the parties to the agreement behind the veil of ignorance, or at least closer to this position, and encourages them to make an unbiased decision as to whether to enter into the social agreement. Secondly, despite the inefficiencies commonly associated with externalities, the externalization of costs from the present generation to future generations and to others who are ultimately expected to benefit from the agreement might be an efficient move that also promotes intergenerational justice.
Arguably, if DIAs were such an attractive mechanism as we contend, one should expect these agreements to be widely used in the real world. We believe that the main reason for the rarity of DIAs is the parties' concern that future generations might avoid implementing such agreements. However, if the parties to these agreements utilized certain mechanisms and adopted a few constraints discussed below, such agreements would become less vulnerable to future nullification.
Keywords: Externalities, redistribution, next generations, unemployment, veil of ignorance, deferred implementation agreements
JEL Classification: K12, K23, K31, K32, K33
Suggested Citation: Suggested Citation