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Redistribution by means of lotteries

Gauthier, S; Laroque, G; (2017) Redistribution by means of lotteries. Journal of Economic Theory , 169 pp. 707-716. 10.1016/j.jet.2017.04.002. Green open access

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A government designs anonymous income transfers between a continuum of citizens whose income valuation is privately known. When transfers are deterministic, the incentive constraints imply equal treatment independently of the government's taste for redistribution. We study whether random transfers may locally improve upon the egalitarian outcome. A suitable Taylor expansion offers an approximation of the utility function by a quasilinear function. The methodology developed by Myerson to deal with incentive constraints then yields a necessary and sufficient condition for the existence of a socially useful randomization. When this condition is met a large set of lotteries are locally improving. A special menu made of two lotteries only is of interest: all the agents with low risk aversion receive the same random transfer, financed by a deterministic tax paid by the high risk aversion agents.

Type: Article
Title: Redistribution by means of lotteries
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jet.2017.04.002
Publisher version: http://doi.org/10.1016/j.jet.2017.04.002
Language: English
Additional information: Copyright © 2017 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY license
Keywords: Lerner egalitarianism; Random redistribution; Incentives
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/1558651
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