Optimal inequality behind the veil of ignorance

Che-Yuan Liang

Theory and Decision, 2017, vol. 83, issue 3, No 8, 455 pages

Abstract: Abstract In Rawls’ (A theory of justice. Harvard University Press, Cambridge, 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 (J Polit Econ 61:434–435, 1953, J Polit Econ 63:309–332, 1955, Am Polit Sci Rev 69:594–606, 1975) treated this situation as a decision under risk and arrived at utilitarianism using expected utility theory. This paper investigates the implications of applying cumulative 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 perceived as desirable. This optimal inequality result contrasts the implications of other social welfare criteria.

Keywords: Veil of ignorance; Prospect theory; Social welfare function; Income inequality (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s11238-017-9599-7 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Optimal Inequality behind the Veil of Ignorance (2013)
Working Paper: Optimal Inequality behind the Veil of Ignorance (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:theord:v:83:y:2017:i:3:d:10.1007_s11238-017-9599-7

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/11238/PS2

DOI: 10.1007/s11238-017-9599-7

Access Statistics for this article

Theory and Decision is currently edited by Mohammed Abdellaoui

More articles in Theory and Decision from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().