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WP-AD 2009-12
Equality of opportunity and optimal effort
decision under uncertainty *
Aitor Calo-Blanco **
Abstract
We analyze a society that cares about inequality of opportunity. We propose a
dynamic setting in which effort is a decision variable that individuals adopt as a
solution of an explicit utility maximization program. Effort determines the
monetary outcome and it depends on the individual’s preferences and
circumstances. The planner designs an incentive scheme so as to foster higher
incomes, reducing the opportunity cost of effort and productivity for the less
favoured agents. Income is assumed to be random, and contrary to the general
neutral assumption, we obtain that luck does have a biased and persistent effect on
income distribution that may be regarded as unfair. We also study the planner’s
optimal policy when she cannot infer perfectly the individuals’ responsibility
feature.
Keywords: Equality of opportunity, effort decision, policy design, luck.
JEL classification: D31, D63, D82.
*
This paper has benefitted enormously from discussions with my supervisor Antonio Villar. I also
wish to thank Íñigo Iturbe-Ormaeche, Marco Mariotti, Lari Arthur Viianto as well as seminar
participants in Alicante, London (RES Ph.D. Meeting), Canazei (IT4), Zaragoza (SAE 08), Paris
(QED meeting 08), Lille (SMYE 08), and Berlin (Ecineq 07) for helpful comments. Financial
support from the Spanish Ministry of Education and Science (grant BES-2005-8723) is gratefully
acknowledged. Any errors are the sole responsibility of the author.
**
Aitor Calo-Blanco: University of Alicante. E-mail: aitor@merlin.fae.ua.es
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