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Fairness and the Dynamic Stability of Institutions

Rawlsian fairness is motivated by two devices: the veil of ignorance that separates individuals from knowledge of their ultimate positions in society and the necessity of irrevocable consent. After making constitutional choices, individuals must live with the consequences of the distributive principles they have chosen; they cannot withdraw from society. Yet, in many problems of institutional choice, people can withdraw from cooperative arrangements after the allocation of benefits has been made. The relationship between fairness and stability in general problems of institutional choice is examined. In symmetric problems, fairness maximizes the stability of institutions. When one individual has a higher valued outside option, maximizing institutional stability requires assigning to that individual a correspondingly large share of the benefits of cooperation. An individual for whom the benefits of cooperation are more prone to risk must generally receive a larger share of the benefits of cooperation if institutional stability is to be maximized.