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Fair management of social risk

  • Marc Fleurbaey

    ()

    (Woodrow Wilson School and Center for Human Values - Princeton University [Pinceton])

  • Stéphane Zuber

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

We provide a general method for extending social preferences defined for riskless economic environments to the context of risk and uncertainty. We apply the method to the problems of managing unemployment allowances (in the context of macroeconomic fluctuations) and catastrophic risks (in the context of climate change). The method guarantees ex post fairness and pays attention to individuals' risk attitudes, while ensuring rationality properties for social preferences, revisiting basic ideas from Harsanyi's celebrated aggregation theorem (Harsanyi, 1955). The social preferences that we obtain do not always take the form of an expected utility criterion, but they always satisfy statewise dominance. We obtain a new characterization of the maximin criterion when expected utility and minimal equity are combined. We also show non-expected utility individual preferences can be accommodated in the approach, although it raises issues regarding belief aggregation.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00973480.

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Date of creation: Sep 2015
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Publication status: Published in Documents de travail du Centre d'Economie de la Sorbonne 2014.16R - ISSN : 1955-611X - Version or.. 2015
Handle: RePEc:hal:cesptp:halshs-00973480
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00973480v2
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  1. Chambers, Christopher P. & Echenique, Federico, 2012. "When does aggregation reduce risk aversion?," Games and Economic Behavior, Elsevier, vol. 76(2), pages 582-595.
  2. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
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  4. Eric Danan & Thibault Gajdos & Brian Hill & Jean-Marc Tallon, 2014. "Aggregating Tastes, Beliefs, and Attitudes under Uncertainty," Documents de travail du Centre d'Economie de la Sorbonne 14063, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
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  15. Grant, Simon & Özsoy, Hatice & Polak, Ben, 2008. "Probabilistic sophistication and stochastic monotonicity in the Savage framework," Mathematical Social Sciences, Elsevier, vol. 55(3), pages 371-380, May.
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  17. Simon Grant & Atsushi Kajii & Ben Polak & Zvi Safra, 2006. "Generalized Utilitarianism and Harsanyi's Partial Observer Theorem," Levine's Bibliography 321307000000000419, UCLA Department of Economics.
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  29. Fleurbaey,Marc & Maniquet,François, 2011. "A Theory of Fairness and Social Welfare," Cambridge Books, Cambridge University Press, number 9780521715348.
  30. Blackorby, Charles & Donaldson, David & Weymark, John A., 1999. "Harsanyi's social aggregation theorem for state-contingent alternatives1," Journal of Mathematical Economics, Elsevier, vol. 32(3), pages 365-387, November.
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