Unequal skills

This chapter examines the question of income redistribution, focusing on the assumption that individuals are not responsible at all for their earning possibilities, but are fully responsible for their preferences over consumption and leisure. It first considers the concepts of 'wealth-fair' allocation and 'full-incomefair' allocation as well as the difficulty of finding envy-free and efficient allocations when individuals are heterogeneous in skills and preferences; this problem can be traced to the conflict between the compensation principle and the liberal reward principle. It then turns to compensation and neutrality, axioms of fairness, and Conditional Equality and Egalitarian-Equivalence solutions. It also describes refinements of the no-envy test and concludes by characterising the Conditional Equality and Egalitarian-Equivalence allocation rules.