The Liberal Ethics of Non-Interference and the Pareto Principle

We analyse the liberal ethics of non-interference applied to social choice. A liberal principle capturing noninterfering views of society and inspired by John Stuart Mill s conception of liberty, is examined. The principle captures the idea that society should not penalise agents after changes in their situation that do not a¤ect others. An impossibility for liberal approaches is highlighted: every social decision rule that satis es unanimity and a general principle of noninterference must be dictatorial. This raises some important issues for liberal approaches in social choice and political philosophy.

Dynamic Relational Contracts under Complete Information

This paper considers a long-term relationship between two agents who both undertake a costly action or investment that together produces a joint benefit. Agents have an opportunity to expropriate some of the joint benefit for their own use. Two cases are considered: (i) where agents are risk neutral and are subject to limited liability constraints and (ii) where agents are risk averse, have quasi-linear preferences in consumption and actions but where limited liability constraints do not bind. The question asked is how to structure the investments and division of the surplus over time so as to avoid expropriation. In the risk-neutral case, there may be an initial phase in which one agent overinvests and the other underinvests. However, both actions and surplus converge monotonically to a stationary state in which there is no overinvestment and surplus is at its maximum subject to the constraints. In the risk-averse case, there is no overinvestment. For this case, we establish that dynamics may or may not be monotonic depending on whether or not it is possible to sustain a first-best allocation. If the first-best allocation is not sustainable, then there is a trade-off between risk sharing and surplus maximization. In general, surplus will not be at its constrained maximum even in the long run.