Catastrophic Risk and Egalitarian Principles for Risk Transfer Mechanisms
AbstractFinancial aid for the worst-off victims of earthquakes and other catastrophes seems to be a morally unquestioned principle for the allocation of public funds. This paper shows however, that this principle is ambiguous if the decision is viewed as a dynamic choice problem where such resources need to be allocated in two periods: before and after the event takes place (before and after uncertainty is resolved). The literature on social choice suggests that utilitarian principles fare better in such situations. This paper provides a uniform formal framework to relate one such result, namely a multi-profile version of Harsanyis 1955 theorem by Mongin (1994) to another one by Myerson (1981), stated in a somewhat unconventional social choice framework. It shows that the linearity condition, that is met only by welfare functions of the utilitarian type, has a natural interpretation in terms of an equivalence of ex-ante and ex-post evaluation, a concept that is related to but not equivalent with dynamic consistency.
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Bibliographic InfoArticle provided by Duncker & Humblot, Berlin in its journal Schmollers Jahrbuch.
Volume (Year): 128 (2008)
Issue (Month): 4 ()
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Web page: http://www.duncker-humblot.de
Find related papers by JEL classification:
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
- I3 - Health, Education, and Welfare - - Welfare and Poverty
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
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