Trade-Offs in Fairness and Preference Judgments

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Marketing Papers
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Behavioral Economics
Business
Cognitive Psychology
Economic Theory
Income Distribution
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Public Economics
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Ordoñez, Lisa D
Mellers, Barbara A
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At the heart of many debates about distributive justice is the widely assumed trade-off between equality and efficiency (Okun, 1975). In the present chapter, equality refers to the distribution of income within a society. Equality increases whenever income variability is reduced. Efficiency refers to the goods and services that result from a given input – production, physical capital, or human labor. Efficiency increases whenever society produces more from the same input. Trade-offs between equality and efficiency occur because increases in one often lead to decreases in the other. An egalitarian society satisfies basic needs by establishing programs that redistribute wealth. But those programs can reduce efficiency when they introduce bureaucratic waste or diminish financial incentives. A reduction in efficiency can lead to fewer investments, fewer jobs, and declining productivity.

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1993
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