Fairness and the dynamic stability of institutions

Rawlsian fairness is motivated by two devices: the veil of ignorance that s eparates individuals from knowledge of their ultimate positions in society and the necessity of irrevocable consent. After making constitutional choic es, individuals must live with the consequences of the distributive princip les they have chosen; they cannot withdraw from society. Yet, in many probl ems of institutional choice, people can withdraw from cooperative arrangeme nts after the allocation of benefits has been made. The relationship betwee n fairness and stability in general problems of institutional choice is exa mined. In symmetric problems, fairness maximizes the stability of instituti ons. When one individual has a higher valued outside option, maximizing ins titutional stability requires assigning to that individual a correspondingl y large share of the benefits of cooperation. An individual for whom the be nefits of cooperation are more prone to risk must generally receive a large r share of the benefits of cooperation if institutional stability is to be maximized.