When a sense of justice hinders social efficiency: Pareto axiom revisited

Abstract

This study addressed people's judgments about desirability of various reward allocation under different task-rules aggregating individual inputs to a group outcome. The rules used in the study were additive, conjunctive, and disjunctive (Steiner, 1972), and subjects evaluated twelve cases of reward allocation reflecting different distributive principles, such as equality and equity. It was found that no one principle was favored under all three aggregation rules. Generally, a distributive principle was favored that was most beneficial for the member whose input 'determined' group success. Specifically, equality was endorsed most often under the conjunctive rule, and equity under the disjunctive rule. It was also found that the Pareto axiom was frequently violated. In pairwise comparison, more than 60% of the subjects endorsed an allocation scheme, that was, subjectively fairer but objectively inferior in terms of Pareto optimality, revealing their commitment to a specific distributive principle. The results suggest that the universal economic assumption of Pareto optimality for social policy-making be seriously questioned.