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This page intentionally left blank
A Theory of Fairness and Social Welfare
The definition and measurement of social welfare have been a vexed issue for the
past century. This book makes a constructive, easily applicable proposal and sug-
gests how to evaluate the economic situation of a society in a way that gives priority
to the worse-off and that respects each individual’s preferences over his or her own
consumption, work, leisure, and so on. This approach resonates with the current
concern to go “beyond the GDP” in the measurement of social progress. Com-
pared to technical studies in welfare economics, this book emphasizes constructive
results rather than paradoxes and impossibilities, and shows how one can start from
basic principles of efficiency and fairness and end up with concrete evaluations of
policies. Compared to more philosophical treatments of social justice, this book is
more precise about the definition of social welfare and reaches conclusions about
concrete policies and institutions only after a rigorous derivation from clearly stated
principles.

Marc Fleurbaey is a Research Director of the National Center for Scientific Research
(CNRS) and serves on the staff of CERSES, the joint research entity of the CNRS
and the Université Paris Descartes. He first worked at INSEE, taught subsequently at
the Universities of Cergy-Pontoise and Pau, and as of 2011 is a professor at Princeton
University. Professor Fleurbaey is a research associate at CORE at the Université
Catholique de Louvain, at Sciences-Po in Paris, and at IDEP in Marseilles, and a
visiting professor at the London School of Economics. He is a former editor of the
journal Economics and Philosophy (Cambridge University Press) and is currently a
managing editor of Social Choice and Welfare. He is the author, editor, or coeditor
of seven books, including Fairness, Responsibility, and Welfare (2008), and Justice,
Political Liberalism, and Utilitarianism: Themes from Harsanyi and Rawls (with
Maurice Salles and John Weymark, Cambridge University Press, 2008). His papers
on normative and public economics have appeared in leading journals such as
Econometrica, the Journal of Political Economy, and the Journal of Economic
Theory.

François Maniquet is Professor of Economics at CORE at the Université Catholique

de Louvain, Belgium, and teaches part time at the University of Warwick, UK.
He served as an FNRS research associate at the University of Namur, Belgium,
until 2005. Professor Maniquet has been a visiting scholar at several research
centers, including the Institute for Advanced Study in Princeton, New Jersey, in
2001–2002. He was awarded the Social Choice and Welfare Prize in 2004, and
he received the Koç Prize for the best paper in the Review of Economic Design
that same year. Professor Maniquet has published papers on welfare economics,
public economics, game theory, and political economics in eminent journals such
as Econometrica, Review of Economic Studies, the Journal of Economic Theory,
and the American Journal of Political Science. He is currently one of the editors
of the Cambridge University Press journal Economics and Philosophy. Professor
Maniquet was recently awarded the Francqui Prize, the highest scientific distinction
in Belgium.
Econometric Society Monographs

Editors:
Rosa L. Matzkin, University of California, Los Angeles
George J. Mailath, University of Pennsylvania

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Centennial Symposium, 978 0 521 63323 9, 978 0 521 63365 9

Continued on page following the index

A Theory of Fairness
and Social Welfare

Marc Fleurbaey
CERSES, Université Paris Descartes

François Maniquet
CORE, Université Catholique de Louvain
cambridge university press
Cambridge, New York, Melbourne, Madrid, Cape Town,
Singapore, São Paulo, Delhi, Tokyo, Mexico City
Cambridge University Press
32 Avenue of the Americas, New York, NY 10013-2473, USA
www.cambridge.org
Information on this title: www.cambridge.org/9780521715348


c Marc Fleurbaey and François Maniquet 2011

This publication is in copyright. Subject to statutory exception

and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without the written
permission of Cambridge University Press.

First published 2011

Printed in the United States of America

A catalog record for this publication is available from the British Library.

Library of Congress Cataloging in Publication data

Fleurbaey, Marc.
A theory of fairness and social welfare / Marc Fleurbaey, François Maniquet.
p. cm. – (Econometric society monographs)
Includes bibliographical references and index.
ISBN 978-0-521-88742-7 (hardback) – ISBN 978-0-521-71534-8 (paperback)
1. Social justice. 2. Welfare economics. 3. Fairness. I. Maniquet, François, 1965–
II. Title.
HM671.F573 2011
330.15 56–dc22 2011006792

ISBN 978-0-521-88742-7 Hardback

ISBN 978-0-521-71534-8 Paperback

Cambridge University Press has no responsibility for the persistence or accuracy of URLs
for external or third-party Internet Web sites referred to in this publication and does not
guarantee that any content on such Web sites is, or will remain, accurate or appropriate.
To Christine and Hélène,
and Hélène, Elise, Antonin, and Timothée
 Contents

Preface page xiii

Introduction xv

I Basics 1
1 A Contribution to Welfare Economics 3
1.1 Introduction 3
1.2 Theory of Fair Allocation 4
1.3 Arrovian Social Choice Theory 10
1.4 Welfarism 13
1.5 Multidimensional Inequality and Welfare Dominance 14
1.6 Bergson–Samuelson Social Welfare Functions 16
1.7 Cost–Benefit Analysis 18
1.8 Money-Metric Utilities 20
1.9 Conclusion 22
2 Efficiency versus Equality 23
2.1 Introduction 23
2.2 Resource Equality versus Pareto Efficiency 24
2.3 Accommodating Equality 28
2.4 Conclusion 37
3 Priority to the Worst-Off 39
3.1 Introduction 39
3.2 Absolute Priority to the Worst-Off 40
3.3 From Nested-Contour Transfer to Absolute Priority 46
3.4 From Equal-Split Transfer to Absolute Priority 49
3.5 Conclusion 52
4 The Informational Basis of Social Orderings 54
4.1 Introduction 54
4.2 The Feasible Set 54
4.3 Information on Preferences 60

ix
x Contents

4.4 Allocation Rules as Social Ordering Functions 67

4.5 Conclusion 70

II Distribution 73
5 Fair Distribution of Divisible Goods: Two Approaches 75
5.1 Introduction 75
5.2 From Equal Split to -Equivalence 75
5.3 A Walrasian SOF 80
5.4 Second-Best Applications 90
5.5 Conclusion 95
6 Specific Domains 98
6.1 Introduction 98
6.2 Expected Utility 98
6.3 Nonconvex Preferences 101
6.4 Homothetic Preferences 105
6.5 Indivisibles 109
6.6 Conclusion 114
7 Extensions 115
7.1 Introduction 115
7.2 Cross-Profile SOFs 116
7.3 Functionings 121
7.4 Legitimate Endowments 123
7.5 Rationalizing Allocation Rules 127
7.6 Conclusion 131

III Production 133

8 Public Goods 135
8.1 Introduction 135
8.2 The Model 136
8.3 Three Axioms 139
8.4 Two Solutions 143
8.5 Pure Public Goods 154
8.6 Second-Best Applications 158
9 Private Goods 166
9.1 Introduction 166
9.2 A Simple Model with Private Rights on the Input 167
9.3 Assessing Reforms 171
9.4 A Third-Best Analysis 172
9.5 A General Model of Production and Allocation 175
9.6 Conclusion 178
10 Unequal Skills 180
10.1 Introduction 180
 Contents xi

10.2 The Model 182

10.3 Compensation versus Responsibility: Ethical Dilemmas 183
10.4 Weakening the Basic Axioms 188
10.5 Compromise Axioms 195
10.6 From Transfer to Priority Axioms 197
10.7 Conclusion 201
11 Income Taxation 203
11.1 Introduction 203
11.2 The Model 204
11.3 Assessing Reforms 208
11.4 Optimal Taxation Schemes in a Simple Economy 217
11.5 Optimal Taxation Schemes 222
11.6 Conclusion 232
12 Conclusions 234
Appendix A: Proofs 239
A.1 Chapter 3: Priority to the Worst-Off 239
A.2 Chapter 5: Fair Distribution of Divisible Goods 242
A.3 Chapter 6: Specific Domains 263
A.4 Chapter 7: Extensions 272
A.5 Chapter 10: Unequal Skills 275

Bibliography 279
Index 287
 Preface

The idea of the line of research presented in this book emerged from a con-
versation in the French foothills of the Pyrenees in April 1996. The prevailing
separation between the theory of social choice, the theory of fair allocation, and
public economics seemed to call for a unified approach that would construct
social preferences similar to the first, relying on fairness concepts from the
second, and derive policy conclusions for the third. It took more time than we
expected to transform this idea into a recognized theory, and we are pleased
to acknowledge the support and constructive influence of many colleagues and
friends. The late Louis Gevers, who had worked himself at the intersection
of social choice and fair allocation, was the first to express interest and pro-
vide encouragements. Our debt to him is immense. Peter Hammond, Philippe
Mongin, Juan de Diós Moreno-Ternero, Erwin Ooghe, Erik Schokkaert, Yves
Sprumont, Kotaro Suzumura, and Koichi Tadenuma were very helpful at dif-
ferent stages of our work and became coauthors and partners in this research.
We are also deeply indebted to Eric Maskin, John Roemer, and John Weymark,
who commented on and discussed several of our early works on this topic. Their
support was both helpful and encouraging. The interest shown by students who
made their own contribution to this direction of research, Efthymios Athanasiou
and Giacomo Valletta, was a great reward. The confirmation that a variety of
empirical applications were possible came thanks to the fruitful collaboration
with Koen Decancq, Brigitte Dormont, Michel Fouquin, Guillaume Gaulier,
Stéphane Luchini, Juan de Diós Moreno-Ternero, Christophe Muller, Esther
Regnier, and Erik Schokkaert, and the support of CEPII, the French Ministry
of Social Affairs, the Junta de Andalucı́a, and the Foundation of Risk. We also
benefited a great deal from the influence, through their work and through stim-
ulating conversation, of Serge Kolm, Hervé Moulin, and William Thomson, as
well as Dilip Abreu, Claude d’Aspremont, Tony Atkinson, Salvador Barberà,
Charles Blackorby, Walter Bossert, Antoine d’Autume, Angus Deaton, David
Donaldson, Rodolphe Dos Santos Ferreira, Lionel Fontagné, Nicolas Gravel,
Faruk Gul, Michel Le Breton, Kevin Roberts, Amartya Sen, Alain Trannoy,
and Bertil Tungodden.

xiii
xiv Preface

This manuscript benefited from many sorts of help. The first chapters owe
much to the hospitality of Nuffield College, Oxford, and later chapters to a
Lachmann fellowship at the London School of Economics and Political Science,
London, and a sabbatical semester at Northwestern University, Evanston. The
final preparation of the manuscript was greatly enhanced by a CORE Prize
and the focused settings of Louvain-la-Neuve. Summer schools at the Urrutja
Foundation, San Sebastian, the University of Hitotsubashi, Tokyo, and the
Universities of Málaga, Siena, Strasbourg, and Rouen, provided opportunities
for presentation and discussions. Detailed written comments were generously
provided by Juan de Diós Moreno-Ternero and Giacomo Valletta, as well as
by a reading group comprising Paolo Brunori, Karen Decancq, Koen Decancq,
Xavier Jara, Marco Mantovani, Erwin Ooghe, Paolo Piacquadio, Christelle
Sapata, and Stéphane Zuber. Two referees made very helpful suggestions and
provided detailed remarks that improved the text substantially. The interest
expressed, and advice provided, by the two editors who handled the manuscript,
Matt Jackson and George Mailath, is also gratefully acknowledged. Scott Parris,
from Cambridge University Press, gave us much help with his characteristic
enthusiasm. Our colleagues at CERSES and CORE deserve many thanks for
providing a supportive environment. Last, but not least, our families have not
only accepted absences and absent-mindedness, but also steadily supported our
interest in fairness and social justice. We dedicate this book to them.
 Introduction

The evaluation of allocations of resources, distributions of well-being, and

public policies is a pervasive need in economics and a frequent activity of
economists. This is, however, generally considered a difficult and hazardous
exercise. The danger is not just the risk of mixing value judgments and factual
assessments. It is also, perhaps primarily, the risk of getting lost in the morass
of the controversies and impossibility theorems of the field that one can broadly
call normative economics. However, the development of this field in the past
century has been impressive, and has provided very powerful analytical tools.
In particular, the theory of social choice and the theory of fair allocation have,
separately, proposed an array of promising concepts and methods. In this book
we put the concepts of these two theories to use and propose a general theory
of social criteria for economic allocation problems.
In a nutshell, then, this book studies the elaboration of criteria for the
evaluation of social and economic situations, and the application of such criteria
to the search for optimal public policies. Several broad objectives are assigned
to the criteria developed in our analysis.
First, the criteria should be sufficiently comprehensive so when they declare
one situation to be preferable to another, there is a sense in which this evaluation
takes account of all relevant considerations and is not merely a judgment that
the considered situation is better in only one respect. More specifically, the
idea is that the criteria should incorporate principles of efficiency as well as
principles of equity. Restricting attention to efficiency only, or to equity only,
would not provide very useful criteria in our opinion.1 A related tenet of this
requirement of comprehensiveness is that the criteria must be individualistic
in the sense of taking account of every individual situation in its own right,
and of giving due consideration to every individual’s perspective on his or her
own position. Criteria that rely directly on global quantities of the population
without grounding this on an assessment of every individual situation are
therefore excluded from the outset, although, obviously, it will be considered

1 See, e.g., Arrow (1963) for a criticism of pure efficiency criteria.

xv
xvi Introduction

quite valuable when, from a properly individualistic criterion, we are sometimes

able to derive simple criteria based on global data.
Second, the criteria should be fine-grained enough to be useful in most
contexts of public decision making and institutional design. Criteria that simply
point to the optimal solution in some special context of implementation are not
sufficient from this standpoint.2 We are looking for sufficiently precise rankings
of all the options that may be on the agenda in various economic and political
contexts. This may be slightly more than what is really needed in practice,
because decision makers need to know only what the optimal option is in
their particular context, not how to rank all the suboptimal options or the
infeasible options. Given the great variety of possible contexts, however, and,
in particular, having in mind that the job of public decision makers is mostly
to evaluate imperfect reforms in characteristically suboptimal situations, we
think that the most convenient kind of criterion is a fine-grained ranking of all
options that may be on the agenda in some possible context.
Finally, because we think of applications in public economics, the crite-
ria must be relevantly applicable to the evaluation of social and economic
situations – that is, primarily, the evaluation of conflicts of interest between
individuals in the allocation of economic resources. We believe that for such
applications, general abstract criteria will not sufficiently take account of the
ethically relevant features of individuals’ interests. More precisely, require-
ments of fairness are sometimes general, but are also often particular to the
situation at hand. Fairness in the distribution of unproduced commodities is not
the same as fairness in production, and fairness in the production of a private
good is not the same as that for a public good. As a consequence, the main
focus here is on economic models of resource allocation, rather than on abstract
models of political or collective decision, although some words will be said on
the latter. What qualifies as a fair solution to one specific allocation problem,
however, may depend on how related problems are solved. For instance, the
solutions to the public good problem discussed in Chapter 8 make sense only
if the income distribution itself is fair.
One defining feature of our analysis throughout this book is that individual
situations are not described initially by interpersonally comparable measures
of utility or well-being. It is part of our theory to construct interpersonal
comparisons on the basis of ordinal noncomparable preferences over bundles
of resources. Moreover, we put special emphasis on cases in which preferences
are heterogeneous. Some words of explanation are needed about this particular
feature of our approach.

2 In a more philosophical context, Sen (2009) emphasizes that, in view of the imperfections of the
societies with which analysts and decision makers are grappling, it is important to rank the social
alternatives instead of merely delineating a perfectly just but unattainable society as is done in
many theories of justice.
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