Economic justice and economic power: An inquiry into distributive justice and political stability

Abstract

We characterize and study the relationship between income redistributions that are just and stable. We assume that for a given economy there exists a set of possible income redistributions, the constitution of the economy. The choice of redistribution is in the hands of the agents, who decide by majority vote. A stable redistribution is one that majority vote cannot alter when each agent tries to maximize his income.

A just redistribution is defined thus: in the set of all possible redistributions it is the one that leads to an income distribution which, when viewed as a lottery, optimizes the expected von Neumann-Morgenstern utility function of the agents of the economy. We assume that all agents have the same utility function, that is, the same attitude toward risk.

We postulate a trade-off between efficiency and egalitarianism and derive and analyze conditions for just and stable redistributions. We look for the characteristics of initial income distributions that make just and stable redistributions identical.

In an example we show how a certain tax schedule on productive work implies certain income redistributions.

This work was completed when I, as a research fellow of the Alexander von Humboldt Foundation, was a guest of the Fakultät für Volkswirtschaftslehre und Statistik, Universität Mannheim. I would like to thank the Alexander von Humboldt Foundation, the Fakultät, and the Sonderforschungsbereich 5, Universität Mannheim, for their support.