Economic Policy and Equality of Opportunity

Abstract

We employ equality of opportunity (EOP) definitions that have appeared in the philosophical literature on distributive justice to a quantitative economic model that incorporates human capital investment and luck, within and across generations. The model is calibrated to the U.S. in 1990, and we operationalize EOP definitions by using children’s state space for their recursive decision problems as circumstances.We show that when comparing measures of EOP, the quantitative implications differ substantially depending on one’s view of parental luck and children’s outcomes. In counterfactual experiments, we find that education subsidies increase utilitarian welfare and decrease overall inequality, but do little to promote EOP. This is because on the one hand, if one takes the view that intergenerational investments should be rewarded, there is little room for improvement to begin with. But even when one takes the view that they should not be rewarded, much stronger redistribution is needed for the policies to have a quantitative impact.

Reference

Tim Lee, and Ananth Seshadri, “Economic Policy and Equality of Opportunity”, The Economic Journal, vol. 128, n. 612, July 2018, pp. 114–151.