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Risk Aversion, Insurance, and the Efficiency-Equality Tradeoff

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Author Info
Samuel Bowles () (University of Massachusetts Amherst)
Herbert Gintis ()

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Abstract

Under conditions of informational asymmetry, redistributing the property rights may improve work incentives but lead to an inefficient choice of entrepreneurial risk. We present a model in which reassignment of property rights does not affect factor prices and we show that there exist egalitarian asset redistributions that enhance allocative efficiency. The scope for such redistributions can be broadened by offering fair insurance protecting the independent entrepreneur against risk unassociated with the production process and against production uncertainties that are unrelated to the quality of their individual decisions. The market will generally supply insurance of this type suboptimally.

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Paper provided by University of Massachusetts Amherst, Department of Economics in its series Working Papers with number 2000-03.

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Date of creation: 15 Mar 2000
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Handle: RePEc:ums:papers:2000-03

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  1. Selden, Thomas M., 1997. "More on the economic efficiency of mixed public/private insurance," Journal of Public Economics, Elsevier, vol. 66(3), pages 517-523, December. [Downloadable!] (restricted)
  2. Case, Anne & Deaton, Angus, 1998. "Large Cash Transfers to the Elderly in South Africa," Economic Journal, Royal Economic Society, vol. 108(450), pages 1330-61, September. [Downloadable!] (restricted)
    Other versions:
  3. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 35-52, January. [Downloadable!] (restricted)
  4. Kanbur, S M, 1979. "Of Risk Taking and the Personal Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 769-97, August. [Downloadable!] (restricted)
  5. Legros, Patrick & Newman, Andrew F., 1996. "Wealth Effects, Distribution, and the Theory of Organization," Journal of Economic Theory, Elsevier, vol. 70(2), pages 312-341, August. [Downloadable!] (restricted)
  6. Laffont, Jean-Jacques & Matoussi, Mohamed Salah, 1995. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," Review of Economic Studies, Blackwell Publishing, vol. 62(3), pages 381-99, July. [Downloadable!] (restricted)
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  7. Dilip Mookherjee, 1995. "Informational Rents and Property Rights in Land," Boston University - Institute for Economic Development 55, Boston University, Institute for Economic Development.
  8. Sinn, Hans-Werner, 1990. " Expected Utility, mu-sigma Preferences, and Linear Distribution Classes: A Further Result," Journal of Risk and Uncertainty, Springer, vol. 3(3), pages 277-81, September.
  9. Banerjee, Abhijit V & Newman, Andrew F, 1991. "Risk-Bearing and the Theory of Income Distribution," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 211-35, April. [Downloadable!] (restricted)
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  10. Black, Jane & de Meza, David, 1997. "Everyone may benefit from subsidising entry to risky occupations," Journal of Public Economics, Elsevier, vol. 66(3), pages 409-424, December. [Downloadable!] (restricted)
  11. Blomqvist, A. & Johansson, P-O., 1997. "Economic efficiency and mixed public/private insurance," Journal of Public Economics, Elsevier, vol. 66(3), pages 505-516, December. [Downloadable!] (restricted)
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Cited by:
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  1. Samuel Bowles, 2000. "Globalization and Redistribution: Feasible Egalitarianism in a Competitive World," Working Papers wp34, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
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