'Pay for Percentile' : Rawlsian vs. Utilitarian

This paper compares the Rawlsian and the Utilitarian optimums in the Barlevy and Neal (2012) model. Our results suggest that, while both the Rawlsain optimum and the Utilitarian optimum yield the same average human capital, the resulting distribution of human capital under Rawlsian optimum is more equitable than that under the Utilitarian optimum. Furthermore, we show that a modi fied tournament-based incentive payment scheme is incentive compatible and can induce the teachers to allocate Rawlsian socially optimal levels of e ffort to all students