Egalitarianism and incentives

Abstract

A group of agents is collectively engaged in a joint productive activity. Each agent supplies an observable input, and output is then collectively shared among the members. A Bergson-Samuelson welfare function defined on individual utilities describes the social values of the agents. However, individual actions are taken on a selfish basis. The collective decision cannot be precommitted, and is made (after inputs are chosen) to maximize welfare conditional on the input decisions. This leads to inefficiency. The aim of this paper is to show formally that, contrary to popular belief, the degree of inefficiency decreases in the extent of egalitarianism embodied in the social welfare function. Journal of Economic Literature Classification Numbers: C72, D30, D63, P13. © 1996 Academic Press, Inc.