WHEN EFFICIENT IS INSUFFICIENT - FAIRNESS IN DECISIONS AFFECTING A GROUP

Many key decisions have significant consequences for a group of people, rather than a single individual. In some cases, traditional group decision making techniques such as negotiation, voting, or compromise can be employed by the group members themselves to determine a satisfactory course of action. In other instances, however, the intervention of a central decision maker may be necessary. Intervening on behalf of a group raises additional concerns for the decision maker, one of which is fairness. This paper builds upon envy-based fairness concepts from the fair allocation literature and theories of ex ante and ex post equitable distributions from the social risk literature to develop a model for choice among limited options under uncertainty when preferences are heterogeneous. The model is therefore appropriate when other existing models are not. An example demonstrates an application of the model for choice under uncertainty and contrasts the approach and decision recommendation with that of existing models. By quantifying the degree of envy rather than treating it dichotomously, the approach captures the balance between fairness and efficiency; some envy may be tolerated if it brings greater overall utility and/or if some envy already exists in the status quo option. Lastly, implementation issues and the impact of differing preferences and attitudes toward risk on fairness and efficiency considerations are explored.