The Fleurbaey paper that we discussed in yesterday's NYU Tax Policy Colloquium describes 4 normative views that it proposes to embody in social welfare functions. Since these views each have some following or potential plausibility, it might be useful (or at least interesting) to set out how these views might apply to a toy hypothetical involving an 8-person society. Hence the following:
DESCRIPTION
|
WAGE RATE
EX ANTE
|
WAGE RATE
EX POST*
|
HOURS WORKED
|
INCOME
|
A Talented, lucky, hard-working
|
100
|
150
|
40
|
6,000
|
B Talented, unlucky, hard-working
|
100
|
50
|
40
|
2,000
|
C Talented, lucky, lazy
|
100
|
150
|
4
|
600
|
D Talented, unlucky, lazy
|
100
|
50
|
4
|
200
|
E Low-talent, lucky, hard-working
|
10
|
15
|
40
|
600
|
F Low-talent, unlucky, hard-working
|
10
|
5
|
40
|
200
|
G Low-talent, lucky, lazy
|
10
|
15
|
4
|
60
|
H Low-talent, unlucky, lazy
|
10
|
5
|
4
|
20
|
*Wage rates ex post differ from ex ante because each
individual makes an irreversible occupational choice. This either pays off and
yields a 50% increase in the wage rate, or backfires and results in a 50%
reduction. The ex ante wage rate is an expected value prior to one’s making
this choice.
Utilitarian:
Absent incentive effects, equalize everyone. But may need to consider incentive
effects on both wage rates ex post (if dependent on choice under uncertainty
but some information) and hours
worked.
Resource egalitarian (Dworkin
version): Wage rate ex ante is brute luck. Suppose we agree that
wage rate ex post and hours worked are option luck. In that case, only want to
address ex ante differences.
John Roemer 1996 (from Theories
of Distributive Justice): Same as resource egalitarian except treat
option luck the same as brute luck when not effort-related. OR, same as
utilitarian except for effort level. Want to equalize for ex ante AND ex post
differences, but not hours worked (= effort level). Note: This is Roemer 1996 as viewed through the filter of Fleurbaey
& Maniquet 2018; no guarantees that the actual John Roemer would agree with
it.
Libertarian: Don’t want to equalize
anything. So no transfers & also no tax, except to fund public goods, based
on benefit that might (???) have something to do with income levels.
FIRST-BEST DISTRIBUTIONAL OUTCOMES,
IGNORING “SLAVERY OF THE TALENTED” ISSUE
Suppose no
public goods to fund, no incentive issues, labor supply is fixed (e.g., the
state can’t command people to increase their hours), and full information
regarding not just income but wage rates ex ante and ex post, and hours worked.
Then:
Utilitarian:
Equalize everyone by dividing up the $9,680 of total income so each individual
gets $1,210.
Resource
egalitarian: Equalize between people with different ex ante wage rates but the
same ex post luck and effort levels. So A and E should split their $6,600
($3,300 each). B and F should split their $2,200 ($1,100 each). C and G should
split their $660 ($330 each). D and H should split their $220 ($110 each).
Roemer
1996: Equalize between people with the same effort level. So hard-working
A, B, E, and F split their $8,800 ($2,200 each). Lazy C, D, G, and H split
their $880 ($220 each).
Libertarian:
Leave everything as is.
“SLAVERY OF THE TALENTED” ISSUE
The above
took labor supply as given. Suppose we continue to ignore incentive issues, but
allow for the possibility that the state could command individuals to work more
hours. Then there’s a possible implication that the utilitarian, at least,
would consider commanding people with high ex post wage rates to work longer
hours, so as to fund greater transfers to everyone. These, too, would be split
evenly, unless working longer hours (via command) affected the marginal utility
of a dollar for those subject to the command. This possibility might make one
uneasy. Ronald Dworkin dubbed it the “slavery of the talented” problem.
Within the
utilitarian framework, the only way to rule out the problem (if one is not
willing simply to embrace it) is to posit that the utility losses from being
thus commanded would exceed the utility gains. In a very simple framework,
however, the only utility loss would be from reduced leisure, as distinct from
the indignity, etc., of being thus commanded to work longer.
Because the
other frameworks are less committed in advance to a determinate framework, they
can – for better or worse – accommodate an ad hoc (which is not to say
necessarily unreasonable) presumption or side-constraint to the effect that we
rule out doing this. This, of course, leaves the question of what underlying
meta-framework one is using to determine the set of desirable side-constraints.
Arguably, the desirability (if one agrees to it) of this side constraint does
not necessarily dictate adopting the other normative frameworks’ approaches to other issues, such as what we think of
option luck and/or low effort levels. Note that a utilitarian might also more
readily accommodate than the others the view that “low effort” is merely an
anodyne example of commodity choice, i.e., preferring leisure to work and
market consumption, just as one might have a preference between ice cream
flavors.
SECOND-BEST DISTRIBUTIONAL OUTCOMES
Suppose that we can only observe income
(and perhaps the overall statistical distribution of types), as opposed to the distinct
breakdown items above (ex ante and ex post wage rates, along with hours worked).
Suppose, moreover, that we add in incentive issues, as well as public goods
that even the libertarian agrees require tax funding. Then the utilitarian
approach is to a degree specified, at least within the contours of a simplified
model, although it requires other inputs, such as concerning labor supply
elasticity and the slope of declining marginal utility. It’s not clear (at
least to me) how this might be made equally to hold for the other approaches.
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