Separable utility and taste-independence: an escape route from the opportunity paradox

Jun Matsui ()
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Jun Matsui: Waseda University

No 572, Working Papers from ECINEQ, Society for the Study of Economic Inequality

Abstract: We provide an escape route from the opportunity paradox, which is described as a conflict between the ex ante and the ex post perspectives of compensation, by restricting the preference domain. Taste-independent utility is introduced as a property of preferences such that individuals' maximized utility levels are the same regardless of their tastes for work. Using the optimal income taxation model, we demonstrate that if parametric utility functions are separable in consumption and labor supply, then they are taste-independent. We obtain a compatibility theorem when utility functions are quasilinear in consumption.

Keywords: Opportunity; Compensation; Domain restriction (search for similar items in EconPapers)
JEL-codes: D63 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2021-01
New Economics Papers: this item is included in nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:inq:inqwps:ecineq2021-572

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