Incomplete Social Contracts
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CitationAghion, Philippe, and Patrick Bolton. 2003. Incomplete social contracts. Journal of the European Economic Association 1(1): 38-67.
AbstractThere is a long normative ‘Social Contract’ tradition that attempts to characterize ex-post income inequalities that are agreeable to all ‘behind a veil of ignorance.’ This paper takes a similar normative approach to characterize social decision-making procedures. It is shown that quite generally some form of majority-voting is preferred to unanimity ‘behind a veil of ignorance’ whenever society faces deadweight costs in making compensating transfers. Deviations from unanimity (or ex-post Pareto optimality) are exante efficient to the extent that they economize on costly compensating transfers. Put another way, the optimal decision rule trades off the benefits of minority protection and those from greater flexibility.
Citable link to this pagehttp://nrs.harvard.edu/urn-3:HUL.InstRepos:4554123
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