Optimal inequality behind the veil of ignorance

Arbeitspapier

In Rawls' (1971) influential social contract approach to distributive justice, the fair income distribution is the one that an individual would choose behind a veil of ignorance. Harsanyi (1953, 1955, 1975) treats this situation as a decision under risk and arrives at utilitarianism using expected utility theory. This paper investigates the implications of applying prospect theory instead, which better describes behavior under risk. I find that the specific type of inequality in bottom-heavy right-skewed income distributions, which includes the log-normal income distribution, could be socially desirable. The optimal inequality result contrasts the implications of other social welfare criteria.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2013:7

Classification and Topics

• Classification: Wirtschaft ; Equity, Justice, Inequality, and Other Normative Criteria and Measurement ; Personal Income, Wealth, and Their Distributions ; Criteria for Decision-Making under Risk and Uncertainty
• Subject: veil of ignorance ; prospect theory ; social welfare function ; income inequality

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Liang, Che-Yuan
• Event: Veröffentlichung
• (who): Uppsala University, Department of Economics
• (where): Uppsala
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/82542
• URN: urn:nbn:se:uu:diva-199754
• Last update: 10.03.2025, 11:43 AM CET