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Fair management of social risk

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We provide a general method for extending fair social preferences defined for riskless economic environments to the context of risk and uncertainty. We apply the méthod to the problems of managing unemployment allowances (in the context of macroeconomic fluctuations) and catastrophic risks (in the context of climate change). It requires paying attention to individuals' risk attitudes and rationality properties of social preferences, revisiting basic ideas from Harsanyi's seminal work (Harsanyi, 1995). The social preferences that we obtain do not in general take the form of an expected utility criterion, but they always satisfy statewise dominance. We also show how non-expected utility individual preferences can be accommodated in the approach.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2014/14016.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 14016.

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Length: 40 pages
Date of creation: Mar 2014
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Handle: RePEc:mse:cesdoc:14016

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Keywords: Social choice; uncertainty; economic environment; social risk.;

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  5. Weitzman, Martin L., 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," Scholarly Articles 3693423, Harvard University Department of Economics.
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  18. Gajdos, Thibault & Maurin, Eric, 2004. "Unequal uncertainties and uncertain inequalities: an axiomatic approach," Journal of Economic Theory, Elsevier, vol. 116(1), pages 93-118, May.
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