Assume that consumers are randomly allocated to either earn income The probability of being…

Assume that consumers are randomly allocated to either earn income  

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The probability of being allocated to  is π. Prior to being allocated to an income level, consumers wish to maximize their expected income level. If it is possible to redistribute income cost lessly, show that prior to allocation to income levels, no consumer would object to a transfer scheme. Now assume there is a cost ∆ for each consumer of income Mh from whom income is taken. Find the maximum value of π for which there is still unanimous agreement that transfers should take place.

 

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