Equality of Opportunity, Moral Hazard and the Timing of Luck

Arnaud Lefranc and Alain Trannoy

No 10645, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Equality of opportunity is usually defined as a situation where the effect of circumstances on outcome is nullified (compensation principle) and effort is rewarded (reward principle). We propose a new version of the reward principle based on the idea that effort deserves reward for it is costly. We show that luck can be introduced in two ways in the definition of these principles, depending on whether the correlation between luck and circumstances should be nullified and whether the correlation between luck and effort should be rewarded. In this regard, the timing of luck with respect to effort decisions is crucial, as is exemplified by moral hazard where effort choice influences the lottery of future uncertain events.

Keywords: timeline; luck; effort; equality of opportunity; moral hazard; reward (search for similar items in EconPapers)
JEL-codes: C14 D63 J62 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2017-03
New Economics Papers: this item is included in nep-hpe
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Citations: View citations in EconPapers (14)

Published - published in: Social Choice and Welfare, 2017, 49 (3/4), 469 - 497

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Journal Article: Equality of opportunity, moral hazard and the timing of luck (2017)
Working Paper: Equality of opportunity, moral hazard and the timing of luck (2017)
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