Discussion- 11. How does efficient frontier analysis (EFA) dif.docx

Discussion- 1
1. How does efficient frontier analysis (EFA) differ from other
forms of complex risk assessment techniques?
The issue of the selection of the risk management methods to
support investment decision-making is one of the key issues
discussed in the management of portfolios. The factor
contributing to the development and dissemination of the risk
management methods is the fact that the development of this
theory, the risk of portfolios of financial institutions began to
measure widely using the Markowitz portfolio selection model.
Currently, this problem has been solved, since his designation
used linear programming. It cannot be missed with these two
facts. The indication of such a relationship, as well as its
characteristics are the main purpose of the publication, in which
there was not only used the study literature. The efficient
frontier can be defined as the image of a set of portfolios that
provide the maximum return for each level of risk or minimal
risk for any level of return. In addition, this measure brings
important details in the development area of portfolios’
management of financial instruments, on the grounds that it
considers the possibility of the investor’s bankruptcy and may
be regarded as a dynamic measurement of the risk (Bali T.G).
2. What limitations might an analyst encounter with EFA?
The financial equivalent of racing cars if They're one of the
most touted, yet most misunderstood and misused, tools in the
field of financial planning. Understanding the nature of an
efficient frontier model and the assumptions on which it relies.
As with a sophisticated racing car, a powerful tool in the wrong
hands can be a very dangerous thing. For example, it's logical to
believe that stocks will outperform bonds in the
future. Efficient frontier models rely on historical data and
relationships to generate the "perfect" portfolio. In my
experience, many investors who use efficient frontier models

are unaware of their pitfalls. These models are being marketed
as solutions to the problem of portfolio construction, but they
come without instructions.
3. How can efficient frontier analysis results be communicated
and utilized with nonmathematical decision maker?
Communication is not a crank to be turned mindlessly, but a
decision problem of its own. As we will see, there are many
alternatives to consider. The analyst’s choices constitute the
design of a communication plan. In ideal cases, the client is
infinitely patient, unshakably invested in the problem, fully
committed to finding the highest quality solutions, flexible
about the process, and unwavering in confidence in the
analyst’s work. In such cases, tight outlines or rambling jumbles
may lead to the same outcome. Good quantitative analysis alone
does not usually produce good decisions, because rarely does
the analyst control all the resources required to decide and act.
Decision makers and other players who influence the decision
must assimilate the results of the analysis and integrate it with
their knowledge of the situation, if they are to be prepared to
act. if decision analysis is intended to facilitate a conversation,
effective communication of results should ensure that concerns
and knowledge are shared sufficiently for actors to move on to
the next stage.
Discussion -2
RE: Chapter 25 - Uses of Efficient Frontier Analysis in
Strategic Risk Management
COLLAPSE
Top of Form
How does efficient frontier analysis (EFA) differ from other
forms of complex risk assessment techniques?
Efficient frontier analysis given for any risk it will give the
highest level of expected outcome regardless of any
combination of assets could be. It will analyze risk vs return on
investment portfolio. The main difference I could bring out here

from other risk assessment techniques is it gives highest level
of portfolio and it considers financial values of the assets as a
key to the analysis.
What limitations might an analyst encounter through the use of
EFA?
The issues looked by analyst while utilizing efficient frontier
analysis is misconception of the idea of a productive frontier
model and the presumptions on which it depends. It is much the
same as giving the incredible asset on an inappropriate hands.
Effective frontier models depend on recorded information and
connections to produce the "impeccable" portfolio. It treats
contributing as a science as just a couple of negligible
adjustments in the normal returns, standard deviations, and
connections of a benefit portfolio will bring about drastically
unique resource designation dependent on productive outskirts
investigation. So we as a financial specialist can't know ahead
of time the precise levels for returns, connections, and standard
deviations as accepted by an effective outskirts model. Expert
need to put some limitation on resource portfolio to make it a
successful model, for example, global resources not surpass 30
percent or 40 percent of the portfolio.
How can efficient frontier analysis results be communicated and
utilized with nonmathematical decision makers?
For a decision to make communication is utmost important,
even before communicating the analyst must consider the
objectives of the decision makers and must design the
communication. Communication should go smooth that all
participants must be able to understand all the practical
available information. A specific grid must be determined to
focus on which areas need to be included and which areas to
omit. Well documented models, e-communication and reports
and most importantly slide presentations will be effective.
Bottom of Form
Discussion -3

RE: Chapter 22 PPT - JAA Inc.–A Case Study in Creating Value
from Uncertainty
COLLAPSE
Top of Form
How high do you assess the knowledge level of the business
strategy throughout the company by the average employee? Is it
your assessment that there is a robust understanding of JAA’s
business strategy? Support your position with examples.
Employees at JAA has a very good understanding and high level
of knowledge. This is because
1. Management has included all the stakeholders in various
communication channels like town hall meetings, conferences,
and webinars. This specifically helped employees at various
levels to understand the company’s strategy.
2. Several business functions were made responsible for
managing risk.
3. Board has involved different committees (Comprehensive,
Risk and strategy, EROC) by delegating work related to
strategy, plans, policies, and regulations
4. Risk management framework was designed in such a way that
guidance has been provided to address budgeting, planning,
human resources, and information security
As you are aware, effective implementation of ISO 31000
involves effective design and implementation of a risk
management framework and effective implementation of the risk
management processes. This will be verified by incorporation of
11 key principles. Find an example in the case for each of the
11 principles in action.
1. JAA identified five strategic objectives tied with risk
management criteria in order to focus on business value.
2. All business functions made responsible for managing risk
and internal controls implementation.
3. Risk management was designed to help in effectively making
business decisions
4. It explicitly addresses concerns with business performance,

organizational system failures, and capital adequacy.
5. With the help of internal and external context and governance
framework risk management structured effectively.
6. A lot of information was gathered from audits and internal
data to define risk levels and identify the probability of risk
occurrence.
7. Designed framework was tailormade to JAA and developed
based on inputs from the risk management team
8. Human and cultural factors were considered by taking the
feedback from employees and adjusting business as per the local
needs in several countries.
9. All the stakeholders including internal and external were
made aware of risk management procedures with help of
policies and application projects thus making it transparent.
10. JAA wants to improve the risk governance framework by
incorporating best practices from several countries like Canada,
UK, and Australia.
11. Helped company to facilitate continuous improvements by
achieving growth in the last 4 years
If you compare the internal audit department at JAA to several
that you know of currently in the marketplace, what are some of
the major differences that you see at JAA that obviously have
contributed to superior performance? What is unique and
refreshing about the approach to the external audit as compared
to what you have seen in the industry?
One of the major difference that the internal audit team at JAA
contributed was indicating the success of the company by
aligning the accomplishments against the company’s objectives.
The exclusive approach that external auditors followed was
sending comprehensive letters to management to provide root
cause analysis.
Bottom of Form
Discussion -4

How high do you assess the knowledge level of the business
strategy throughout the company by the average employee? Is it
your assessment that there is a robust understanding of JAA’s
business strategy? Support your position with examples.
The JAA Inc. uses best available information at their disposal to
make better decision and for communicating the organizational
goals to it employees. This encourages employees to understand
best business practices and allows them to identify threats and
opportunities. To make risks more manageable the strategic
objectives, tactical objectives and operational objectives were
mapped and traced.
The HR team at JAA adopted a policy that allowed them to
perform background checks and train new employees with risk
management.
When JAA decided to adopt the governance framework, they
have applied the principles of disciplines, transparency,
independence and accountability that allowed business functions
to follow governance throughout the company.
As you are aware, effective implementation of ISO 31000
involves effective design and implementation of a risk
management framework and effective implementation of the risk
management processes. This will be verified by incorporation of
11 key principles. Find an example in the case for each of the
11 principles in action.
JAA Inc. adopted the ISO 31000, which is a risk management
framework and a process for managing risk. It can help
enterprises increase the probability of achieving their targets,
improves risk identification and management process, compare
their risk management process with the benchmark, corporate
governance and efficiently use the resources for risk mitigation.
They provide guidance for internal and external audit programs
within an organization. 11 principles of ISO 31000 are
a. Create Value: The risk management must be tied to objectives
and must focus on business values to reach their targets.
Attributes and values that cannot be measured directly may be

expressed using qualitative descriptors rather than quantitative
measures. Example – Human, social and ecological values that
play key role on managing safety, security and compliance
related risks.
b. Be an integral part of organizational decision making and
processes: Risk management is not a standalone process, rather
it is a part of all the organizational processes including strategic
planning, internal projects and change management process.
c. Be a part of decision making: The risk management process
helps decision makers with choices, priorities and to select the
most appropriate action. Decision on strategic issues should
consider environmental factors, changes in organization’s
resources, human factors.
d. Explicitly address uncertainties: Risks can be assessed by
understanding the nature and sources of the uncertainties. When
assessing a risk, it is important to consider the uncertainties
associated with it. They should never be underestimated or
overestimated. Examples of uncertainties – Likelihood and
consequences of risks.
e. Be systematic, structured and timely: A systematic and
structured risk management helps an organization to achieve
efficiency, consistency and reliable results. Example – usage of
top-down or bottom-up approach to address the appropriate
level of management.
f. Be based on the best information available: The historical
data, experience, feedback, predictions and expert judgement
are the inputs to the risk management process. The decision
makers should provide accurate information and any absence
would cause potential harm. One way to achieve this is through
periodic reviews.
g. Be tailored to your business: The risk management should be
tailored according to the needs of each organizations because
they vary in culture, characteristics, risk criteria and operational
contexts.
h. Take human and cultural factors into consideration: It is
important that the employee capability, perceptions and culture

are taken into account during the risk management process.
i. Be transparent and inclusive of all stakeholders: For the risk
management process to be efficient, the involvement of
stakeholders and decision makers is important at every level of
the implementation. Implementation of this principle should
also consider confidentiality, security and privacy within the
organization.
j. Be dynamic, iterative and responsive to change: The risk
changes with internal, external events such as internal
restructuring, acquisitions, change in relevant law, securing a
new contract, new knowledge and technologies, or changes in
supplier. Hence any such decision making activity should be
monitored, reviewed from time-to-time.
k. Facilitate continual improvement and enhancement of
theorganization: Improve risk management process through
qualitative, quantitative indicators, feedbacks obtained from
users, customers and stakeholders. The process should be
If you compare the internal audit department at JAA to several
that you know of currently in the marketplace, what are some of
the major differences that you see at JAA that obviously have
contributed to superior performance? What is unique and
refreshing about the approach to the external audit as compared
to what you have seen in industry?
The internal audit department at JAA consists of high quality
performers with strong academic and professional background.
They were responsible for verifying if the ERF is operating
affectively and provided required assurance. The department
members actively designed the risk management framework,
attended strategic planning process, evaluated risk management,
carefully assigned roles and responsibilities, are much focused
on the highest risks in the organization, comprehensive review
of business or operational process, monitoring and reviewing
new risks, and were dedicated to continuous improvement. Their
performance was very consistent and were immensely dedicated
to achieving the company’s strategic objectives. They report to
the board members and its committee periodically.

However, the company missed few key areas during the external
audit. So they invited external auditors to the strategic planning
session and allowed the external audit department head to
communicate with the internal audit team. They evaluated the
existing risk management framework, processes and
recommended organizational changes based on the Root Cause
Analysis (RCA). They created risk management functions to
ensure that all parties’ efforts were aligned clearly. The
internal audit time was never consumed in performing external
audit work to reduce cost of the external audit.
Anarchy State and Utopia
Robert Nozick
Natural Rights
Natural Rights
Life Liberty and Property
Natural Rights
Life, Liberty and Property
Negative Rights
Non-interference
Property
There are only two ways to come to legitimately own
something:
Mix your labor with the land (make it)

Voluntary exchange (trade for it)
Taxation is Slavery
The Minimal State is Justified
People will hire agencies to protect their natural rights.
In order to be effective, these agencies must enforce their
protections universally within their territories.
Liberty Upsets Patterns
Suppose you have a Just Distribution, D.
The voluntary and free actions of citizens will change the
distribution.
Force will be needed to restore the “Just” Distribution.
Liberty Upsets Patterns

Distributive Justice
Robert Nozick
From Anarchy, State, and Utopia, 149-182, with omissions.
Copyright @ 1974 by
Basic Books, Inc. Reprinted by permission of Basic Books, a
subsidiary of Perseus
Books Group, LLC.
The minimal state is the most extensive state that can be
justified. Any state more
extensive violates people's rights. Yet many persons have put
forth reasons
purporting to justify a more extensive state. It is impossible
within the compass of
this book to examine all the reasons that have been put forth.
Therefore, I shall
focus upon those generally acknowledged to be most weighty
and influential, to
see precisely wherein they fail. In this chapter we consider the
claim that a more
extensive state is justified, because necessary (or the best
instrument) to achieve
distributive justice; in the next chapter we shall take up diverse
other claims.
The term "distributive justice" is not a neutral one. Hearing the
term "distribution,"
most people presume that some thing or mechanism uses some
principle or criterion to

give out a supply of things. Into this process of distributing
shares some error may
have crept. So it is an open question, at least, whether
redistribution should take
place; whether we should do again what has already been done
once, though poorly.
However, we are not in the position of children who have been
given portions of
pie by someone who now makes last minute adjustments to
rectify careless cutting.
There is no central distribution, no person or group entitled to
control all the
resources, jointly deciding how they are to be doled out. What
each person gets, he
gets from others who give to him in exchange for something, or
as a gift. In a free
society, diverse persons control different resources, and new
holdings arise out of the
voluntary exchanges and actions of persons. There is no more a
distributing or
distribution of shares than there is a distributing of mates in a
society in which
persons choose whom they shall marry. The total result is the
product of many
individual decisions which the different individuals involved
are entitled to make.
Some uses of the term "distribution," it is true, do not imply a
previous distributing
appropriately judged by some criterion (for example,
"probability distribution");
nevertheless, despite the title of this chapter, it would be best to
use a terminology that
clearly is neutral. We shall speak of people's holdings; a
principle of justice in
holdings describes (part of) what justice tells us (requires)
about holdings. I shall state

first what I take to be the correct view about justice in holdings,
and then turn to the
discussion of alternate views.
Section 1
The Entitlement Theory
The subject of justice in holdings consists of three major topics.
The first is the
original acquisition of holdings, the appropriation of unheld
things. This includes the
issues of how unheld things may come to be held, the process,
or processes, by
which unheld things may come to be held, the things that may
come to be held by
these processes, the extent of what comes to be held by a
particular process, and so on.
We shall refer to the complicated truth about this topic, which
we shall not
formulate here, as the principle of justice in acquisition. The
second topic concerns
the transfer of holdings from one person to another. By what
processes may a person
transfer holdings to another? How may a person acquire a
holding from another who
holds it? Under this topic come general descriptions of
voluntary exchange, and gift
and (on the other hand) fraud, as well as reference to particular
conventional details
fixed upon in a given society. The complicated truth about this
subject (with

placeholders for conventional details) we shall call the principle
of justice in
transfer. (And we shall suppose it also includes principles
governing how a person
may divest himself of a holding, passing it into an unheld state.)
If the world were wholly just, the following inductive definition
would
exhaustively cover the subject of justice in holdings.
1. A person who acquires a holding in accordance with the
acquisition is entitled to that holding.
2. A person who acquires a holding in accordance with the
transfer, from someone else entitled to the holding, is entitled to
the holding.
3. No one is entitled to a holding except by (repeated)
applications of 1 and 2.
The complete principle of distributive justice would say simply
that a distribution is
just if everyone is entitled to the holdings they possess under
the distribution.
A distribution is just if it arises from another just distribution
by legitimate means.
The legitimate means of moving from one distribution to
another are specified by
the principle of justice in transfer. The legitimate first "moves"
are specified by the
principle of justice in acquisition. Whatever arises from a just
situation by just
steps is itself just. The means of change specified by the

transfer preserve justice. As correct rules of inference are truth-
preserving, and any
conclusion deduced via repeated application of such rules from
only true premisses
is itself true, so the means of transition from one situation to
another specified by the
principle of justice in transfer are justice-preserving, and any
situation actually
arising from repeated transitions in accordance with the
principle from a just
situation is itself just. The parallel between justice-preserving
transformations and
truth-preserving transformations illuminates where it fails as
well as where it holds.
That a conclusion could have been deduced by truth-preserving
means from
premisses that are true suffices to show its truth. That from a
just situation a situation
could have arisen via justice-preserving means does not suffice
to show its justice.
The fact that a thief's victims voluntarily could have presented
him with gifts does
not entitle the thief to his ill-gotten gains. Justice in holdings is
historical; it
depends upon what actually has happened. We shall return to
this point later.
Not all actual situations are generated in accordance with the
two principles of
justice in holdings: the principle of justice in acquisition and
the principle of
justice in transfer. Some people steal from others, or defraud
them, or enslave them,

seizing their product and preventing them from living as they
choose, or forcibly
exclude others from competing in exchanges. None of these are
permissible modes
of transition from one situation to another. And some persons
acquire holdings by
means not sanctioned by the principle of justice in acquisition.
The existence of past
injustice (previous violations of the first two principles of
justice in holdings) raises
the third major topic under justice in holdings: the rectification
of injustice in
holdings. If past injustice has shaped present holdings in
various ways, some
identifiable and some not, what now, if anything, ought to be
done to rectify these
injustices? What obligations do the performers of injustice have
toward those whose
position is worse than it would have been had the injustice not
been done? Or, than
it would have been had compensation been paid promptly? How,
if at all, do
things change if the beneficiaries and those made worse off are
not the direct parties
in the act of injustice, but, for example, their descendants? Is an
injustice done to
someone whose holding was itself based upon an unrectified
injustice? How far back
must one go in wiping clean the historical slate of injustices?
What may victims of
injustice permissibly do in order to rectify the injustices being
done to them,
including the many injustices done by persons acting through
their government? I

do not know of a thorough or theoretically sophisticated
treatment of such issues.
Idealizing greatly, let us suppose theoretical investigation will
produce a principle
of rectification. This principle uses historical information about
previous situations
and injustices done in them (as defined by the first two
principles of justice and
rights against interference), and information about the actual
course of events that
flowed from these injustices, until the present, and it yields a
description (or
descriptions) of holdings in the society. The principle of
rectification presumably
will make use of its best estimate of subjunctive information
about what would
have occurred (or a probability distribution over what might
have occurred, using
the expected value) if the injustice had not taken place. If the
actual description of
holdings turns out not to be one of the descriptions yielded by
the principle, then one
of the descriptions yielded must be realized.
The general outlines of the theory of justice in holdings are that
the holdings of a
person are just if he is entitled to them by the principles of
justice in acquisition
and transfer, or by the principle of rectification of injustice (as
specified by the
first two principles). If each person's holdings are just, then the
total set
(distribution) of holdings is just. To turn these general outlines
into a specific
theory we would have to specify the details of each of the three
principles of

justice in holdings: the principle of acquisition of holdings, the
principle of
transfer of holdings, and the principle of rectification of
violations of the first two
principles. I shall not attempt that task here (Locke's principle
of justice in
acquisition is discussed below.)... .
How Liberty Upsets Patterns
It is not clear how those holding alternative conceptions of
distributive justice can
reject the entitlement conception of justice in holdings. For
suppose a distribution
favored by one of these non-entitlement conceptions is realized.
Let us suppose it is
your favorite one and let us call this distribution D1; perhaps
everyone has an equal
share, perhaps shares vary in accordance with some dimension
you treasure. Now
suppose that Wilt Chamberlain is greatly in demand by
basketball teams, being a great
gate attraction. (Also suppose contracts run only for a year,
with players being free
agents.) He signs the following sort of contract with a team: In
each home game,
twenty-five cents from the price of each ticket of admission
goes to him. (We
ignore the question of whether he is "gouging" the owners,
letting them look out
for themselves.) The season starts, and people cheerfully attend
his team's games;

they buy their tickets, each time dropping a separate twenty-five
cents of their
admission price into a special box with Chamberlain's name on
it. They are excited
about seeing him play; it is worth the total admission price to
them. Let us suppose
that in one season one million persons attend his home games,
and Wilt
Chamberlain winds up with $250,000, a much larger sum than
the average income
and larger even than anyone else has. Is he entitled to this
income? Is this new
distribution D2, unjust? If so, why? There is no question about
whether each of the
people was entitled to the control over the resources they held
in D,; because that
was the distribution (your favorite) that (for the purposes of
argument) we assumed
was acceptable. Each of these persons chose to give twenty-five
cents of their money
to Chamberlain. They could have spent it on going to the
movies, or on candy
bars, or on copies of Dissent magazine, or of Monthly Review
But they all, at least one
million of them, converged on giving it to Wilt Chamberlain in
exchange for
watching him play basketball. If D, was a just distribution, and
people voluntarily
moved from it to D2, transferring parts of their shares they were
given under D, (what
was it for if not to do something with?), isn't D, also just? If the
people were
entitled to dispose of the resources to which they were entitled
(under D,), didn't this
include their being entitled to give it to, or exchange it with,
Wilt Chamberlain?

Can anyone else complain on grounds of justice? Each other
person already has his
legitimate share under D1. Under Dp there is nothing that
anyone has that anyone else
has a claim of justice against. After someone transfers
something to Wilt Chamberlain,
third parties still have their legitimate shares; their shares are
not changed. By what
process could such a transfer among two persons give rise to a
legitimate claim of
distributive justice on a portion of what was transferred, by a
third party who had
no claim of justice on any holding of the others before the
transfer? To cut off
objections irrelevant here, we might imagine the exchanges
occurring in a socialist
society after hours. After playing whatever basketball he does
in his daily work, or
doing whatever other daily work he does, Wilt Chamberlain
decides to put in
overtime to earn additional money. (First his work quota is set;
he works time over
that.) Or imagine it is a skilled juggler people like to see, who
puts on shows after
hours.
Why might someone work overtime in a society in which it is
assumed their needs
are satisfied? Perhaps because they care about things other than
needs. I like to write in
books that I read, and to have easy access to books for browsing
at odd hours. It
would be very pleasant and convenient to have the resources of
Widener Library in
my back yard. No society, I assume, will provide such resources

close to each person
who would like them as part of his regular allotment (under DO.
Thus, persons
either must do without some extra things that they want, or be
allowed to do
something extra to get some of these things. On what basis
could the inequalities
that would eventuate be forbidden? Notice also that small
factories would spring up
in a socialist society, unless forbidden. I melt down some of my
personal possessions
(under D,) and build a machine out of the material. I offer you,
and others, a
philosophy lecture once a week in exchange for your cranking
the handle on my
machine, whose products I exchange for yet other things, and so
on. (The raw
materials used by the machine are given to me by others who
possess them under D1,
in exchange for hearing lectures.) Each person night participate
to gain things over
and above their allotment under D,. Some persons even might
want to leave their job
in socialist industry and work full time in this private sector. I
shall say something
more about these issues in the next chapter. Here I wish merely
to note how private
property even in means of production would occur in a socialist
society that did
not forbid people to use as they wished some of the resources
they are given under
the socialist distribution D1. The socialist society would have to

forbid capitalist acts
between consenting adults.
The general point illustrated by the Wilt Chamberlain example
and the example of the
entrepreneur in a socialist society is that no end-state principle
of distributional
patterned principle of justice can be continuously realized
without continuous
interference with people's lives. Any favored pattern would be
transformed into
one unfavored by the principle, by people choosing to act in
various ways; for
example, by people exchanging goods and services with other
people, or giving
things to other people, things the transferrers are entitled to
under the favored
distributional pattern. To maintain a pattern one must either
continually interfere
to stop people from transferring resources as they wish to, or
continually (or
periodically) interfere to take from some persons resources that
others for some
reason chose to transfer to them. (But if some time limit is to be
set on how long
people may keep resources others voluntarily transfer to them,
why let them keep
these resources for any period of time? Why not have immediate
confiscation?) It
might be objected that all persons voluntarily will choose to
refrain from actions
which would upset the pattern. This presupposes unrealistically
(1) that all will most
want to maintain the pattern (are those who don't, to be
"reeducated" or forced to
undergo self-criticism"?), (2) that each can gather enough

information about his
own actions and the ongoing activities of others to discover
which of his actions
will upset the pattern, and (3) that diverse and far-flung persons
can coordinate their
actions to dovetail into the pattern. Compare the manner in
which the market is
neutral among persons' desires, as it reflects and transmits
widely scattered
information via prices, and coordinates persons' activities.
It puts things perhaps a bit too strongly to say that every
patterned (or end-state)
principle is liable to be thwarted by the voluntary actions of the
individual parties
transferring some of their shares they receive under the
principle. For perhaps some
very weak patterns are not so thwarted. Any distributional
pattern with any
egalitarian component is overturnable by the voluntary actions
of individual
persons over time; as is every patterned condition with
sufficient content so as
actually to have been proposed as presenting the central core of
distributive justice.
Still, given the possibility that some weak conditions or patterns
may not be unstable
in this way, it would be better to formulate an explicit
description of the kind of
interesting and contentful patterns under discussion, and to
prove a theorem about
their instability. Since the weaker the patterning, the more

likely it is that the
entitlement system itself satisfies it, a plausible conjecture is
that any patterning
either is unstable or is satisfied by the entitlement system....
Taxation of earnings from labor is on a par with forced labor.
Some persons find
this claim obviously true: taking the earnings of n hours labor is
like taking n
hours from the person; it is like forcing the person to work n
hours for another's
purpose. Others find the claim absurd. But even these, if they
object to forced
labor, would oppose forcing unemployed hippies to work for the
benefit of the
needy. And they would also object to forcing each person to
work five extra hours
each week for the benefit of the needy. But a system that takes
five hours' wages in
taxes does not seem to them like one that forces someone to
work five hours, since
it offers the person forced a wider range of choice in activities
than does taxation
in kind with the particular labor specified. (But we can imagine
a gradation of
systems of forced labor, from one that specifies a particular
activity, to one that gives
a choice among two activities, to ... ; and so on up.)
Furthermore, people envisage a
system with something like a proportional tax on everything
above the amount
necessary for basic needs. Some think this does not force
someone to work extra
hours, since there is no fixed number of extra hours he is forced
to work, and
since he can avoid the tax entirely by earning only enough to

cover his basic needs.
This is a very uncharacteristic view of forcing for those who
also think people are
forced to do something whenever the alternatives they face are
considerably worse.
However, neither view is correct. The fact that others
intentionally intervene, in
violation of a side constraint against aggression, to threaten
force to limit the
alternatives, in this case to paying taxes or (presumably the
worse alternative) bare
subsistence, makes the taxation system one of forced labor and
distinguishes it
from other cases of limited choices which are not forcings.
The man who chooses to work longer to gain an income more
than sufficient for his
basic needs prefers some extra goods or services to the leisure
and activities he could
perform during the possible nonworking hours; whereas the man
who chooses not
to work the extra time prefers the leisure activities to the extra
goods or services he
could acquire by working more. Given this, if it would be
illegitimate for a tax
system to seize some of a man's leisure (forced labor) for the
purpose of serving the
needy, how can it be legitimate for a tax system to seize some
of a man's goods for
that purpose? Why should we treat the man whose happiness
requires certain
material goods or services differently from the man whose
preferences and desires
make such goods unnecessary for his happiness? Why should
the man who prefers
seeing a movie (and who has to earn money for a ticket) be open

to the required call
to aid the needy, while the person who prefers looking at a
sunset (and hence need
earn no extra money) is not? Indeed, isn't it surprising that
redistributionists choose to
ignore the man whose pleasures are so easily attainable without
extra labor, while
adding yet another burden to the poor unfortunate who must
work for his pleasures?
If anything, one would have expected the reverse. Why is the
person with the
nonmaterial or nonconsumption desire allowed to proceed
unimpeded to his most
favored feasible alternative, whereas the man whose pleasures
or desires involve
material things and who must work for extra money (thereby
serving whomever
considers his activities valuable enough to pay him) is
constrained in what he can
realize? ...
Locke's Theory of Acquisition
Before we turn to consider other theories of justice in detail, we
must introduce an
additional bit of complexity into the structure of the entitlement
theory. This is
best approached by considering Locke's attempt to specify a
acquisition. Locke views property rights in an unowned object
as originating through
someone's mixing his labor with it. This gives rise to many

questions. What are the
boundaries of what labor is mixed with? If a private astronaut
clears a place on Mars,
has he mixed his labor with (so that he comes to own) the whole
planet, the whole
uninhabited universe, or just a particular plot? Which plot does
an act bring under
ownership? The minimal (possibly disconnected) area such that
an act decreases
entropy in that area, and not elsewhere? Can virgin land (for the
purposes of
ecological investigation by high-flying airplane) come under
ownership by a Lockean
process? Building a fence around a territory presumably would
make one the owner
of only the fence (and the land immediately underneath it).
Why does mixing one's labor with something make one the
owner of it? Perhaps
because one owns one's labor, and so one comes to own a
previously unowned thing
that becomes permeated with what one owns. Ownership seeps
over into the rest.
But why isn't mixing what I own with what I don't own a way of
losing what
I own rather than a way of gaining what I don't? If I own a can
of tomato juice and
spill it in the sea so that its molecules (made radioactive, so I
can check this)
mingle evenly throughout the sea, do I thereby come to own the
sea, or have I
foolishly dissipated my tomato juice? Perhaps the idea, instead,
is that laboring on
something improves it and makes it more valuable; and anyone
is entitled to own a
thing whose value he has created. (Reinforcing this, perhaps, is

the view that
laboring is unpleasant. If some people made things effortlessly,
as the cartoon
characters in The Yellow Submarine trail flowers in their wake,
would they have
lesser claim to their own products whose making didn't cost
them anything?) Ignore
the fact that laboring on something may make it less valuable
(spraying pink enamel
paint on a piece of driftwood that you have found). Why should
one's entitlement
extend to the whole object rather than just to the added value
one's labor has
produced? (Such reference to value might also serve to delimit
the extent of
ownership; for example, substitute "increases the value of" for
"decreases entropy
in" in the above entropy criterion.) No workable or coherent
value-added
property scheme has yet been devised, and any such scheme
presumably would fall
to objections (similar to those) that fell the theory of Henry
George.
It will be implausible to view improving an object as giving full
ownership to it,
if the stock of unowned objects that might be improved is
limited. For an object's
coming under one person's ownership changes the situation of
all others. new idea
must convince to try it out; private property enables people to
decide on the pattern

and types of risks they wish to bear, leading to specialized types
of risk bearing;
private property protects future persons by leading some to hold
back resources
from current consumption for future markets; it provides
alternate sources of
employment for unpopular persons who don't have to convince
any one person or
small group to hire them, and so on. These considerations enter
a Lockean theory to
support the claim that appropriation of private property satisfies
the intent behind the
"enough and as good left over" proviso, not as a utilitarian
justification of property.
They enter to rebut the claim that because the proviso is
violated no natural right
to private property can arise by a Lockean process. The
difficulty in working such
an argument to show that the proviso is satisfied is in fixing the
appropriate base
line for comparison. Lockean appropriation makes people no
worse off than they
would be how? This question of fixing the baseline needs more
detailed
investigation than we are able to give it here. It would be
desirable to have an
estimate of the general economic importance of original
appropriation in order to
see how much leeway there is for differing theories of
appropriation and of the
location of the baseline. Perhaps this importance can be
measured by the
percentage of all income that is based upon untransformed raw
materials and given
resources (rather than upon human actions), mainly rental
income representing the

unimproved value of land, and the price of raw material in situ,
and by the
percentage of current wealth which represents such income in
the past.
We should note that it is not only persons favoring private
property who need a
theory of how property rights legitimately originate. Those
believing in collective
property, for example those believing that a group of persons
living in an area jointly
own the territory, or its mineral resources, also must provide a
theory of how such
property rights arise; they must show why the persons living
there have rights to
determine what is done with the land and resources there that
persons living elsewhere
don't have (with regard to the same land and resources).
The Proviso
Whether or not Locke's particular theory of appropriation can be
spelled out so as to
handle various difficulties, I assume that any adequate theory of
justice in acquisition
will contain a proviso similar to the weaker of the ones we have
attributed to Locke.
A process normally giving rise to a permanent bequeathable
property right in a
previously unowned thing will not do so if the position of others
no longer at
liberty to use the thing is thereby worsened. It is important to
specify this
particular mode of worsening the situation of others, for the
proviso does not
encompass other modes. It does not include the worsening due

to more limited
opportunities to appropriate (the first way above, corresponding
to the more stringent
condition), and it does not include how I "worsen" a seller's
position if I appropriate
materials to make some of what he is selling, and then enter into
competition with
him. Someone whose appropriation otherwise would violate the
proviso still may
appropriate provided he compensates the others so that their
situation is not
thereby worsened; unless he does compensate these others, his
appropriation will
violate the proviso of the principle of justice in acquisition and
will be an
illegitimate one. A theory of appropriation incorporating this
Lockean proviso will
handle correctly the cases (objections to the theory lacking the
proviso) where
someone appropriates the total supply of something necessary
for life.
A theory which includes this proviso in its principle of justice
in acquisition must
also contain a more complex principle of justice in transfer.
Some reflection of the
proviso about appropriation constrains later actions. If my
appropriating all of a
certain substance violates the Lockean proviso, then so does my
appropriating some
and purchasing all the rest from others who obtained it without

otherwise violating
the Lockean proviso. If the proviso excludes someone's
appropriating all the
drinkable water in the world, it also excludes his purchasing it
all. (More weakly,
and messily, it may exclude his charging certain prices for some
of his supply.) This
proviso (almost?) never will come into effect; the more
someone acquires of a
scarce substance which others want, the higher the price of the
rest will go, and the
more difficult it will become for him to acquire it all. But still,
we can imagine, at
least, that something like this occurs: someone makes
simultaneous secret bids to the
separate owners of a substance, each of whom sells assuming he
can easily purchase
more from the other owners; or some natural catastrophe
destroys all of the supply of
something except that in one person's possession. The total
supply could not be
permissibly appropriated by one person at the beginning. His
later acquisition of it
all does not show that the original appropriation violated the
proviso (even by a
reverse argument similar to the one above that tried to zip back
from Zto A).
Rather, it is the combination of the original appropriation plus
all the later transfers
and actions that violates the Lockean proviso.
Each owner's title to his holding includes the historical shadow
of the Lockean
proviso on appropriation. This excludes his transferring it into
an agglomeration that
does violate the Lockean proviso and excludes his using it in a

way, in coordination
with others or independently of them, so as to violate the
proviso by making the
situation of others worse than their baseline situation. Once it is
known that
someone's ownership runs afoul of the Lockean proviso, there
are stringent limits
on what he may do with (what it is difficult any longer
unreservedly to call)
"his property." Thus a person may not appropriate the only
water hole in a desert
and charge what he will. Nor may he charge what he will if he
possesses one,
and unfortunately it happens that all the water holes in the
desert dry up, except for
his. This unfortunate circumstance, admittedly no fault of his,
brings into
operation the Lockean proviso and limits his property rights.
Similarly, an owner's
property right in the only island in an area does not allow him
to order a castaway
from a shipwreck off his island as a trespasser, for this would
violate the Lockean
proviso…
The fact that someone owns the total supply of something
necessary for others to stay
alive does not entail that his (or anyone's) appropriation of
anything left some people
(immediately or later) in a situation worse than the baseline
one. A medical researcher
who synthesizes a new substance that effectively treats a certain

disease and who refuses
to sell except on his terms does not worsen the situation of
others by depriving them
of whatever he has appropriated. The others easily can possess
the same materials he
appropriated; the researcher's appropriation or purchase of
chemicals didn't make
those chemicals scarce in a way so as to violate the Lockean
proviso. Nor would
someone else's purchasing the total supply of the synthesized
substance from the
medical researcher. The fact that the medical researcher uses
easily available
chemicals to synthesize the drug no more violates the Lockean
proviso than does
the fact that the only surgeon able to perform a particular
operation eats easily
obtainable food in order to stay alive and to have the energy to
work. This shows
that the Lockean proviso is not an "endstate principle"; it
focuses on a particular
way that appropriative actions affect others, and not on the
structure of the situation
that results.
Intermediate between someone who takes all of the public
supply and someone who
makes the total supply out of easily obtainable substances is
someone who
appropriates the total supply of something in a way that does
not deprive the others
of it. For example, someone finds a new substance in an out-of-
the-way place. He
discovers that it effectively treats a certain disease and
appropriates the total supply.
He does not worsen the situation of others; if he did not stumble

upon the substance
no one else would have, and the others would remain without it.
However, as time
passes, the likelihood increases that others would have come
across the substance;
upon this fact might be based a limit to his property right in the
substance so that
others are not below their baseline position; for example, its
bequest might be
limited. The theme of someone worsening another's situation by
depriving him of
something he otherwise would possess may also illuminate the
example of patents.
An inventor's patent does not deprive others of an object which
would not exist if
not for the inventor. Yet patents would have this effect on
others who independently
invent the object. Therefore, these independent inventors, upon
whom the burden
of proving independent discovery may rest, should not be
excluded from utilizing
their own invention as they wish (including selling it to others).
Furthermore, a
known inventor drastically lessens the chances of actual
independent invention. For
persons who know of an invention usually will not try to
reinvent it, and the notion
of independent discovery here would be murky at best. Yet we
may assume that in
the absence of the original invention, sometime later someone
else would have
come up with it. This suggests placing a time limit on patents,
as a rough rule of
thumb to approximate how long it would have taken, in the
absence of knowledge
of the invention, for independent discovery.

I believe that the free operation of a market system will not
actually run afoul of
the Lockean proviso.
JUSTICE AS FAIRNESS
John Rawls 1921-2002
“A Theory of Justice” (1971)
A society is fair (non-coercive) if rational, free, moral
individuals would consent to the social roles they have.
People are morally equal and deserve maximum liberty
compatible with the rights of everyone else.
Society is a Cooperative Scheme for
Mutual Advantage
A society is fair if:
rational, free, moral individuals would consent to the social
roles they have.
The rules of justice are deliberately chosen, willingly accepted,
acknowledged, and implemented.
Justice as Fairness

Political: Concerned with the Basic Structure of society, the
pervasive, powerful, and inescapable rules, norms, and
institutions that define citizens’ social lives.
Not Metaphysical: Does not rely on any particular Conception
of the Good
Justice as Fairness
The pervasive, fundamental, and inescapable rules, norms, and
institutions that define citizens’ social lives and regulate how
the fundamental benefits and burdens of society are distributed.
The Basic Structure
Society should be fair!
Agree
Disagree
A perfectly even distribution is the fairest, but we don’t want to
be inefficient!
Principle of Efficiency: A society is efficient if it could not
make anyone better off without making someone else worse off.
Equality of Opportunity: Beneficial roles are available to the
talented and hard-working.

Justice as Fairness: The Informal Argument
Principle of Efficiency + Formal Equality of Opportunity =
Natural Liberty
Principle of Efficiency + Formal Equality of Opportunity =
Natural Liberty
Formal Equality of Opportunity (legal access to careers) is not
good enough. Why?
Principle of Efficiency + FAIR Equality of Opportunity =
Liberal Equality
Liberal Equality
Still not good enough! Why not?

Liberal Equality
Still not good enough! Why not?
Arbitrarily rewards the winners of the talent lottery.
Democratic Equality = Fair Equality of Opportunity + The
Difference Principle: Inequalities are justified only when they
benefit the least advantaged
Justice as Fairness
Rules are fair when they are chosen according to a Pure
Procedural Justice
Contrast with Perfect Procedural Justice and Imperfect
Procedural Justice
Justice as Fairness: The Formal Argument
The Original Position
The Veil of Ignorance

Justice as Fairness: The Formal Argument
You don’t know the details about your place in society.
Race, Class, Gender, Talent, Religion, etc.
You do know you will have a conception of the good, but you
don’t know what it will be.
What sort of society would you pick, from this position?
What sort of society would you pick, from this position?
Rawls thinks it will be one where, no matter how lucky or
unlucky you are, you will have a reasonable chance to pursue
your conception of the good.

What do you think?
Awesome! I’m a Rawlsian!
Pretty cool, but there are some bits I don’t like
Some nice ideas, but mostly meh
Garbage
Which argument was stronger?
The Formal Argument from choice in the Original Position
The Informal argument based on everyone’s moral equality
JUSTICE AS FAIRNESS
By John Rawls (1971)
The Main Idea of The Theory of Justice
My aim is to present a conception of justice which generalizes
and carries
to a higher level of abstraction the familiar theory of the social
contract as
found, say, in Locke, Rousseau, and Kant. In order to do this we
are not to
think of the original contract as one to enter a particular society
or to set
up a particular form of government. Rather, the guiding idea
is that the

principles of justice for the basic structure of society are the
object of the
original agreement. They are the principles that free and
rational persons
concerned to further their own interests would accept in an
initial position
of equality as defining the fundamental terms of their
association. These
principles are to regulate all further agreements; they specify
the kinds of
social cooperation that can be entered into and the forms of
government
that can be established. This way of regarding the principles of
justice I
shall call justice as fairness.
Thus we are to imagine that those who engage in social
cooperation
choose together, in one joint act, the principles which are to
assign basic
rights and duties and to determine the division of social
benefits. Men are
to decide in advance how they are to regulate their claims
against one
another and what is to be the foundation charter of their society.
Just as
each person must decide by rational reflection what constitutes
his good,
that is, the system of ends which it is rational for him to pursue,
so a group
of persons must decide once and for all what is to count among
them as
just and unjust. The choice which rational men would
make in this
hypothetical situation of equal liberty, assuming for the
present that this

choice problem has a solution, determines the principles of
justice.
In justice as fairness the original position of equality
corresponds to the
state of nature in the traditional theory of the social contract.
This original
position is not, of course, thought of as an actual historical state
of affairs,
much less as a primitive condition of culture. It is understood as
a purely
hypothetical situation characterized so as to lead to a certain
conception
of justice? Among the essential features of this situation is
that no one
knows his place in society, his class position or social status,
nor does
anyone know his fortune in the distribution of natural assets and
abilities,
his intelligence, strength, and the like. I shall even assume that
the parties
do not know their conceptions of the good or their special
psychological
propensities. The principles of justice are chosen behind a
veil of
ignorance. This ensures that no one is advantaged or
disadvantaged in
the choice of principles by the outcome of natural chance
or the
contingency of social circumstances. Since all are similarly
situated and
no one is able to design principles to favor his particular
condition, the
principles of justice are the result of a fair agreement or
bargain. For given

1
the circumstances of the original position, the symmetry of
everyone's
relation to each other, this initial situation is fair between
individuals as
moral persons, that is, as rational beings with their own ends
and capable,
I shall assume, of a sense of justice. The original position is,
one might
say, the appropriate initial status quo, and the fundamental
agreements
reached in it are fair. This explains the propriety of the name
"justice as
fairness": it conveys the idea that the principles of justice are
agreed to in
an initial situation that is fair. The name does not mean that the
concepts
of justice and fairness are the same, any more that the phrase
"poetry as
metaphor" means that the concepts of poetry and metaphor are
the same.
Justice as fairness begins, as I have said, with one of the most
general of
all choices which persons might make together, namely, with
the choice of
the first principles of a conception of justice which is to
regulate all
subsequent criticism and reform of institutions. Then,
having chosen a
conception of justice, we can suppose that they are to
choose a
constitution and a legislature to enact laws, and so on, all in

accordance
with the principles of justice initially agreed upon. Our social
situation is
just if it is such that by this sequence of hypothetical
agreements we would
have contracted into the general system of rules which
defines it.
Moreover, assuming that the original position does
determine a set of
principles (that is, that a particular conception of justice would
be chosen),
it will then be true that whenever social institutions satisfy
these principles
those engaged in them can say to one another that they are
cooperating
on terms to which they would agree if they were free and equal
persons
whose relations with respect to one another were fair. They
could all view
their arrangements as meeting the stipulations which they
would
acknowledge in an initial situation that embodies widely
accepted and
reasonable constraints on the choice of principles. The general
recognition
of this fact would provide the basis for a public
acceptance of the
corresponding principles of justice. No society can, of
course, be a
scheme of cooperation which men enter voluntarily in a literal
sense; each
person finds himself placed at birth in some particular
position in some
particular society, and the nature of this position materially
affects his life
prospects. Yet a society satisfying the principles of justice

as fairness
comes as close as a society can to being a voluntary scheme, for
it meets
the principles which free and equal persons would assent
to under
circumstances that are fair. In this sense its members are
autonomous
and the obligations they recognize self-imposed.
One feature of justice as fairness is to think of the parties
in the initial
situation as rational and mutually disinterested. This does not
mean that
the parties are egoists, that is, individuals with only
certain kinds of
interests, say in wealth, prestige, and domination. But they are
conceived
as not taking an interest in one another's interests. They are to
presume
that even their spiritual aims may be opposed, in the way that
the aims of
those of different religions maybe opposed. Moreover, the
concept of
2
rationality must be interpreted as far as possible in the
narrow sense,
standard in economic theory, of taking the most effective means
to given
ends. I shall modify this concept to some extent, as explained
later, but
one must try to avoid introducing into it any controversial
ethical elements.

The initial situation must be characterized by stipulations that
are widely
accepted.
In working out the conception of justice as fairness one main
task clearly
is to determine which principles of justice would be chosen in
the original
position. To do this we must describe this situation in
some detail and
formulate with care the problem of choice which it presents.
These matters
I shall take up in the immediately succeeding chapters. It
may be
observed, however, that once the principles of justice are
thought of as
arising from an original agreement in a situation of equality, it
is an open
question whether the principle of utility would be
acknowledged. Offhand it
hardly seems likely that persons who view themselves as equals,
entitled
to press their claims upon one another, would agree to a
principle which
may require lesser life prospects for some simply for the sake of
a greater
sum of advantages enjoyed by others. Since each desires to
protect his
interests, his capacity to advance his conception of the good, no
one has
a reason to acquiesce in an enduring loss for himself in
order to bring
about a greater net balance of satisfaction. In the absence of
strong and
lasting benevolent impulses, a rational man would not
accept a basic

structure merely because it maximized the algebraic sum of
advantages
irrespective of its permanent effects on his own basic rights and
interests.
Thus it seems that the principle of utility is incompatible
with the
conception of social cooperation among equals for mutual
advantage. It
appears to be inconsistent with the idea or reciprocity implicit
in the notion
of a well-ordered society. Or, at any rate, so I shall argue.
I shall maintain instead that the persons in the initial
situation would
choose two rather different principles: the first requires
equality in the
assignment of basic rights and duties, while the second holds
that social
and economic inequalities, for example inequalities of
wealth and
authority, are just only if they result in compensating benefits
for everyone,
and in particular for the least advantaged members of
society. These
principles rule out justifying institutions on the grounds that the
hardships
of some are offset by a greater good in the aggregate. It may be
expedient
but it is not just that some should have less in order that
others may
prosper. But there is no injustice in the greater benefits earned
by a few
provided that the situation of persons not so fortunate is thereby
improved.
The intuitive idea is that since everyone's well-being
depends upon a

scheme of cooperation without which no one could have a
satisfactory life,
the division of advantages should be such as to draw
forth the willing
cooperation of everyone taking part in it, including those less
well situated.
Yet this can be expected only if reasonable terms are proposed.
The two
principles mentioned seem to be a fair agreement on the basis of
which
3
those better endowed, or more fortunate in their social position,
neither of
which we can be said to deserve, could expect the willing
cooperation of
others when some workable scheme is a necessary
condition of the
welfare of all. Once we decide to look for a conception
of justice that
nullifies the accidents of natural endowment and the
contingencies of
social circumstance as counters in quest for political and
economic
advantage, we are led to these principles. They express
the result of
leaving aside those aspects of the social world that seem
arbitrary from a
moral point of view.
The problem of the choice of principles, however, is extremely
difficult. I
do not expect the answer I shall suggest to be convincing to

everyone. It
is, therefore, worth noting from the outset that justice as
fairness, like
other contract views, consists of two parts: (1) an
interpretation of the
initial situation and of the problem of choice posed there, and
(2) a set of
principles which, it is argued, would be agreed to. One may
accept the first
part of the theory (or some variant thereof), but not the
other, and
conversely. The concept of the initial contractual situation
may seem
reasonable although the particular principles proposed are
rejected. To be
sure, I want to maintain that the most appropriate
conception of this
situation does lead to principles of justice contrary to
utilitarianism and
perfectionism, and therefore that the contract doctrine
provides an
alternative to these views. Still, one may dispute this
contention even
though one grants that the contractarian method is a
useful way of
studying ethical theories and of setting forth their underlying
assumptions.
Justice as fairness is an example of what I have called a
contract theory.
Now there may be an objection to the term "contract" and
related
expressions, but I think it will serve reasonably well.
Many words have
misleading connotations which at first are likely to
confuse. The terms

"utility" and "utilitarianism" are surely no exception. They
too have
unfortunate suggestions which hostile critics have been willing
to exploit;
yet they are clear enough for those prepared to study utilitarian
doctrine.
The same should be true of the term "contract" applied to moral
theories.
As I have mentioned, to understand it one has to keep in
mind that it
implies a certain level of abstraction. In particular, the
content of the
relevant agreement is not to enter a given society or to adopt a
given form
of government, but to accept certain moral principles.
Moreover, the
undertakings referred to are purely hypothetical: a contract view
holds that
certain principles would be accepted in a well-defined initial
situation.
The merit of the contract terminology is that it conveys
the idea that
principles of justice may be conceived as principles that would
be chosen
by rational persons, and that in this way conceptions of
justice may be
explained and justified. The theory of justice is a part, perhaps
the most
significant part, of the theory of rational choice. Furthermore,
principles of
justice deal with conflicting claims upon the advantages
won by social
4

cooperation; they apply to the relations among several persons
or groups.
The word "contract" suggests this plurality as well as the
condition that the
appropriate division of advantages must be in accordance with
principles
acceptable to all parties. The condition of publicity for
principles of justice
is also connoted by the contract phraseology. Thus, if these
principles are
the outcome of an agreement, citizens have a knowledge of the
principles
that others follow. It is characteristic of contract theories
to stress the
public nature of political principles. Finally there is the long
tradition of the
contract doctrine. Expressing the tie with this line of
thought helps to
define ideas and accords with natural piety. There are
then several
advantages in the use of the term "contract." With due
precautions taken,
it should not be misleading.
A final remark. Justice as fairness is not a complete contract
theory. For it
is clear that the contractarian idea can be extended to the choice
of more
or less an entire ethical system, that is, to a system including
principles for
all the virtues and not only for justice. Now for the most
part I shall
consider only principles of justice and others closely
related to them; I

make no attempt to discuss the virtues in a systematic way.
Obviously if
justice as fairness succeeds reasonably well, a next step
would be to
study the more general view suggested by the name
"rightness as
fairness." But even this wider theory fails to embrace all
moral
relationships, since it would seem to include only our relations
with other
persons and to leave out of account how we are to
conduct ourselves
toward animals and the rest of nature. I do not contend that the
contract
notion offers a way to approach these questions which are
certainly of the
first importance; and I shall have to put them aside. We must
recognize
the limited scope of justice as fairness and of the general type
of view that
it exemplifies. How far its conclusions must be revised once
these other
matters are understood cannot be decided in advance.
The Original Position and Justification
I have said that the original position is the appropriate initial
status quo
which insures that the fundamental agreements reached in it are
fair. This
fact yields the name "justice as fairness." It is clear, then, that I
want to
say that one conception of justice is more reasonable than
another, or
justifiable with respect to it, if rational persons in the initial
situation would

choose its principles over those of the other for the role
of justice.
Conceptions of justice are to be ranked by their acceptability to
persons so
circumstanced. Understood in this way the question of
justification is
settled by working out a problem of deliberation: we have
to ascertain
which principles it would be rational to adopt given the
contractual
situation. This connects the theory of justice with the
theory of rational
choice. …
5
There is, however, another side to justifying a particular
description of the
original position. This is to see if the principles which
would be chosen
match our considered convictions of justice or extend them
in an
acceptable way. We can note whether applying these
principles would
lead us to make the same judgments about the basic structure of
society
which we now make intuitively and in which we have the
greatest
confidence; or whether, in cases where our present
judgments are in
doubt and given with hesitation, these principles offer a
resolution which
we can affirm on reflection. There are questions which we feel
sure must

be answered in a certain way. For example, we are
confident that
religious intolerance and racial discrimination are unjust. We
think that we
have examined these things with care and have reached what we
believe
is an impartial judgment not likely to be distorted by an
excessive attention
to our own interests. These convictions are provisional fixed
points which
we presume any conception of justice must fit. But we have
much less
assurance as to what is the correct distribution of wealth and
authority.
Here we may be looking for a way to remove our doubts. We
can check
an interpretation of the initial situation, then, by the
capacity of its
principles to accommodate our firmest convictions and to
provide
guidance where guidance is needed.
In searching for the most favored description of this situation
we work from
both ends. We begin by describing it so that it represents
generally shared
and preferably weak conditions. We then see if these
conditions are
strong enough to yield a significant set of principles. If not,
we look for
further premises equally reasonable. But if so, and these
principles match
our considered convictions of justice, then so far well and
good. But
presumably there will be discrepancies. In this case we have a
choice. We

can either modify the account of the initial situation or we can
revise our
existing judgments, for even the judgments we take
provisionally as fixed
points are liable to revision. By going back and forth,
sometimes altering
the conditions of the contractual circumstances, at others
withdrawing our
judgments and conforming them to principle, I assume that
eventually we
shall find a description of the initial situation that both
expresses
reasonable conditions and yields principles which match our
considered
judgments duly pruned and adjusted. This state of affairs
I refer to as
reflective equilibrium. It is an equilibrium because at last our
principles and
judgments coincide; and it is reflective since we know to what
principles
our judgments conform and the premises of their
derivation. At the
moment everything is in order. But this equilibrium is not
necessarily
stable. It is liable to be upset by further examination of
the conditions
which should be imposed on the contractual situation and
by particular
cases which may lead us to revise our judgments. Yet for the
time being
we have done what we can to render coherent and to
justify our
convictions of social justice. We have reached a conception of
the original
position.

6
I shall not, of course, actually work through this process.
Still, we may
think of the interpretation of the original position that I shall
present as the
result of such a hypothetical course of reflection. It represents
the attempt
to accommodate within one scheme both reasonable
philosophical
conditions on principles as well as our considered judgments of
justice. In
arriving at the favored interpretation of the initial situation
there is no point
at which an appeal is made to self-evidence in the traditional
sense either
of general conceptions or particular convictions. I do not
claim for the
principles of justice proposed that they are necessary truths or
derivable
from such truths. A conception of justice cannot be
deduced from self-
evident premises or conditions on principles; instead, its
justification is a
matter of the mutual support of many considerations, of
everything fitting
together into one coherent view.
A final comment. We shall want to say that certain principles of
justice are
justified because they would be agreed to in an initial situation
of equality.
I have emphasized that this original position is purely
hypothetical. It is

natural to ask why, if this agreement is never actually
entered into, we
should take any interest in these principles, moral or
otherwise. The
answer is that the conditions embodied in the description of the
original
position are ones that we do in fact accept. Or if we do not, then
perhaps
we can be persuaded to do so by philosophical reflection. Each
aspect of
the contractual situation can be given supporting grounds. Thus
what we
shall do is to collect together into one conception a number of
conditions
on principles that we are ready upon due consideration to
recognize as
reasonable. These constraints express what we are prepared to
regard as
limits on fair terms of social cooperation. One way to look at
the idea or
the original position, therefore, is to see it as an expository
device which
sums up the meaning of these conditions and helps us to
extract their
consequences. On the other hand, this conception is also
an intuitive
notion that suggests its own elaboration, so that led on by it we
are drawn
to define more clearly the standpoint from which we can
best interpret
moral relationships. We need a conception that enables us to
envision our
objective from afar: the intuitive notion of the original position
is to do this
for us.....

Two Principles of Justice
I shall now state in a provisional form the two principles of
justice that I
believe would be chosen in the original position. In this section
I wish to
make only the most general comments, and therefore the first
formulation
of these principles is tentative. As we go on I shall run
through several
formulations and approximate step by step the final statement to
be given
much later. I believe that doing this allows the exposition to
proceed in a
natural way.
7
The first statement of the two principles read as follows:
First: each person is to have an equal right to the most extensive
basic liberty compatible with similar liberty for others.
Second: social and economic inequalities are to be
arranged so
that they are both (a) reasonably expected to be to
everyone's
advantage, and (b) attached to positions and offices open to
all....
By way of general comment, these principles primarily apply,
as I have
said, to the basic structure of society. They are to govern the
assignment

of rights and duties and to regulate the distribution of social and
economic
advantages. As their formulation suggests, these principles
presuppose
that the social structure can be divided into two more or less
distinct parts,
the first principle applying to the one, the second to the
other. They
distinguish between those aspects of the social system that
define and
secure the equal liberties of citizenship and those that
specify and
establish social and economic inequalities. The basic liberties of
citizens
are, roughly speaking, political liberty (the right to vote and to
be eligible
for public office) together with freedom of speech and
assembly; liberty of
conscience and freedom of thought; freedom of the person along
with the
right to hold (personal) property; and freedom from
arbitrary arrest and
seizure as defined by the concept of the rule of law. These
liberties are all
required to be equal by the first principle, since citizens of a
just society
are to have the same basic rights.
The second principle applies, in the first approximation, to the
distribution
of income and wealth and to the design of organizations that
make use of
differences in authority and responsibility, or chains of
command. While
the distribution of wealth and income need not be equal, it
must be to

everyone's advantage, and at the same time, positions of
authority and
offices of command must be accessible to all. One applies
the second
principle by holding positions open, and then, subject to this
constraint,
arranges social and economic inequalities so that everyone
benefits.
These principles are to be arranged in a serial order with the
first principle
prior to the second. This ordering means that a departure
from the
institutions of equal liberty required by the first principle
cannot be justified
by, or compensated for, by greater social and economic
advantages. The
distribution of wealth and income, and the hierarchies of
authority, must be
consistent with both the liberties of equal citizenship and
equality of
opportunity.
It is clear that these principles are rather specific in their
content, and their
acceptance rests on certain assumptions that I must
eventually try to
explain and justify. A theory of justice depends upon a theory
of society in
8
ways that will become evident as we proceed. For the present, it
should

be observed that the two principles (and this holds for all
formulations) are
a special case of a more general conception of justice
that can be
expressed as follows:
All social values – liberty and opportunity, income and wealth,
and
the bases of self-respect – are to be distributed equally unless
an
unequal distribution of any, or all, of these values is to
everyone's
advantage.
Injustice, then, is simply inequalities that are not to the benefit
of all. Of
course, this conception is extremely vague and requires
interpretation.
As a first step, suppose that the basic structure of society
distributes
certain primary goods, that is, things that every rational man is
presumed
to want. … For simplicity, assume that the chief primary
goods at the
disposition of society are rights and liberties, powers and
opportunities,
income and wealth. (… the primary good of self-respect
has a central
place.) These are the social primary goods. Other primary goods
such as
health and vigor, intelligence and imagination, are natural
goods; although
their possession is influenced by the basic structure, they
are not so
directly under its control. Imagine, then, a hypothetical initial

arrangement
in which all the social primary goods are equally distributed:
everyone has
similar rights and duties, and income and wealth are evenly
shared. This
state of affairs provides a benchmark for judging improvements.
If certain
inequalities of wealth and organizational powers would
make everyone
better off than in this hypothetical starting situation, then they
accord with
the general conception.
Now it is possible, at least theoretically, that by giving up
some of their
fundamental liberties men are sufficiently compensated by
the resulting
social and economic gains. The general conception of justice
imposes no
restrictions on what sort of inequalities are permissible; it
only requires
that everyone's position be improved. We need not suppose
anything so
drastic as consenting to a condition of slavery. Imagine instead
that men
forego certain political rights when the economic returns
are significant
and their capacity to influence the course of policy by the
exercise of these
rights would be marginal in any case. It is this kind of exchange
which the
two principles as stated rule out; being arranged in serial order
they do not
permit exchanges between basic liberties and economic and
social gains.
The serial ordering of principles expresses an underlying

preference
among primary social goods. When this preference is rational so
likewise
is the choice of these principles in this order. …
9

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