Equity in Production Economies with Dedicated Factors

In this paper I consider the problem of determining an equitable allocation of resources in production economies in which factors must be dedicated to production. That is, although they might be used to produce various consumption goods, they cannot be consumed directly. I …rst establish that in such economies, envy-free and e¢ cient allocations exist under standard assumptions, whereas that is not the case for general production economies [Pazner and Schmeidler (1974)]. However, I argue that no-envy is not a suitable notion of fairness in this context. I then introduce two new concepts of fairness and I explore the compatibility of each with Pareto e¢ ciency. A novel aspect of these is that they include the in‡uence of each agent on the factor allocation decision as a component of fairness. Finally, I provide an example to demonstrate the new concepts.