ABSTRACT
This chapter considers why markets might fail for equity reasons. Very simply, society may choose not to allocate resources through markets if some people would be rewarded too poorly, or too well, by the market. The chapter addresses what do we mean by market rewards. The amount of income earned in a market is one reward, but not the only one; opportunity itself is important to many people. The chapter investigates how evenly are market and other economic rewards distributed in the United States, and how has this changed over time. It examines how best to define equity or fairness in the distribution of rewards. Several major philosophic approaches to equity are presented through an example in which one group is taxed in order to transfer income to a less well-off group. The Laffer curve for taxation was enthusiastically adopted by the Reagan administration in the early 1980s.
