Abstract

We consider a society jointly committed to ensuring equal opportunity and to increasing aggregate wealth but facing the vestiges of past discrimination manifested in a historically skewed distribution of social resources. Focusing on the problem of allocating the existing quantity of inputs, we contrast two policy instruments: redistributing resources in order to compensate for the effect of the asymmetry on productive abilities, or granting preferential treatment in employment to the disadvantaged group (affi rmative action). We show that society is generally better off with affi rmative action than without it, and that a socially optimal policy may rely solely on affi rmative action. 1