Final Report Breaking through the Equity Barrier in Environmental ...

6.2.2 Three stages in equity-based resource allocation
experiments
Introducing efficiency-equity trade-offs leads to several possible layers or stages to
implementing the equitable allocation problem between more than two players:
Stage 1 The differential endowment, or ‘pure equity’ setup
The classical ‘pie sharing’ problem. Allocate a given quantity as a function only of their
individual endowments (economic, social, or otherwise). This corresponds to pure
consumption issues, for instance, household water consumption.
Stage 2 The differential productivity, or equity-efficiency setup
Allocate a given quantity as a function of people’s individual productivity, itself a function
of their initial endowment. The second function creates a tension between equity and
efficiency. This setup corresponds to capital productivity issues, such as productivity of
land or of water for irrigation.
Stage 3 The differential effort, or accountability setup
The quantity to be allocated depends on people’s effort. It rewards their labour input
and/or their investment efforts. The productivity of effort can be made to also depend on
the productivity of endowments.
Each stage introduces an extra ‘ingredient’ (or dimension) of what enters a judgment of equity,
whatever this be. Following Konow (2001), these ingredients are, in corresponding order, basic
needs, efficiency, and accountability.
First consider the no-effort input case, where the problem is to distribute a given quantity across
people differently endowed. The issue is assumed to be total versus individual benefits. What is
needed is, in all cases:
1 A maximum efficiency allocation which defines a maximum aggregate benefit benchmark
for all.
2 An initial endowment of resources such that there is clear inequality across members of
society.
3 A relationship between endowed resource and allocated resource such that the ‘productivity’
or social efficiency of the allocation is higher for the ‘better endowed’ than for the ‘lesser
endowed’ (this endowment-productivity relationship creates a tension between efficiency and
notions of equity).
4 An inverse relationship between aggregate social benefits and more equal or equitable
distributions, so as to create a trade-off situation.
An extra dimension is to relate the allocation to effort inputs. This introduces the notions of
accountability and proportionality. The previous case is the special case where output is not
dependent on effort input but only on endowment and allocation efficiency. The basic (or
minimum) needs principle will emerge in response to the smallest endowments.
It is not possible to implement all three stages in this limited project. Since the equityefficiency
trade-off is our core concern, ‘stage 2’ will form the core of our experimental setup.
This will, however, include ‘stage 1’ as a sub-problem, but will exclude the effort-dependent
problem. What this means is that the type of policies catered for here are consumption-related
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