Reversal Of Misfortune When Providing For Adversity
Often an economic agent dissatisfied with an endowed distribution of utilities desires to optimize this distribution by transferring income or resources across individuals or states of the world. This multi-state optimization theme recurs in a wide variety of economic contexts, ranging across taxation and income distribution, international trade and market disruption, labor contracts and unemployment insurance, Rawlsian design of social contracts, provision for retirement, and many others. Because analyses of such topics are frequently so context driven, the generality of this theme seems to have gone unnoticed and, of a particular paradoxical result, unappreciated. One example of this paradox is how lump-sum distribution in a first best environment will reverse the preference rankings of the endowed distribution of utilities - after redistribution the originally 'bad' outcomes become preferred to originally better ones. Or as another example, if fair insurance is available, the rational resource owner will buy so much insurance that the otherwise 'bad' contingency becomes preferred. This paper examines the underlying structure common to such contexts.
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Volume (Year): 17 (2006)
Issue (Month): 6 ()
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shavell, Steven & Weiss, Laurence, 1979.
"The Optimal Payment of Unemployment Insurance Benefits over Time,"
Journal of Political Economy,
University of Chicago Press, vol. 87(6), pages 1347-62, December.
- Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
- Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
- McGuire, Martin C & Pratt, John & Zeckhauser, Richard, 1991. " Paying to Improve Your Chances: Gambling or Insurance?," Journal of Risk and Uncertainty, Springer, vol. 4(4), pages 329-38, December.
- Hirshleifer, Jack, 1987. "Economic Behaviour in Adversity," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226342825.
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