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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, EEP-PSE - Ecole d'Économie de Paris - 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. Robert S. Pindyck, 2009. "The Economic and Policy Consequences of Catastrophes," Working Papers 0912, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  2. Marc Fleurbaey, 2005. "Health, wealth and fairness," Post-Print hal-00247025, HAL.
  3. Fleurbaey,Marc & Maniquet,François, 2011. "A Theory of Fairness and Social Welfare," Cambridge Books, Cambridge University Press, number 9780521887427, 1.
  4. Chambers, Christopher P. & Echenique, Federico, 2012. "When does aggregation reduce risk aversion?," Games and Economic Behavior, Elsevier, vol. 76(2), pages 582-595.
  5. Hill , Brian & Danan , Eric, 2014. "Aggregating Tastes, Beliefs, and Attitudes Under Uncertainty," Les Cahiers de Recherche 1057, HEC Paris.
  6. 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.
  7. Thibault Gajdos & Jean-Marc Tallon, 2002. "Fairness under Uncertainty," Economics Bulletin, AccessEcon, vol. 4(18), pages 1-7.
  8. Simon Grant & Atsushi Kajii & Ben Polak & Zvi Safra, 2006. "Generalized Utilitarianism and Harsanyi’s Partial Observer Theorem," Cowles Foundation Discussion Papers 1578, Cowles Foundation for Research in Economics, Yale University.
  9. Marc Fleurbaey, 2010. "Assessing Risky Social Situations," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 649-680, 08.
  10. Christian Gollier, 1991. "Unemployment Insurance: Risk Sharing Versus Efficiency," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 16(1), pages 59-74, June.
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  12. Mongin, P., . "Consistent Bayesian aggregation," CORE Discussion Papers RP 1176, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Itzhak Gilboa & Dov Samet & David Schmeidler, 2001. "Utilitarian Aggregation of Beliefs and Tastes," Game Theory and Information 0105001, EconWPA.
  14. Simon Grant & Hatice Ozsoy & Ben Polak, 2007. "Probabilistic Sophistication and Stochastic Monotonicity in the Savage Framework," Levine's Bibliography 122247000000001390, UCLA Department of Economics.
  15. MONGIN, Philippe, . "The paradox of the Bayesian experts and state-dependent utility theory," CORE Discussion Papers RP 1312, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Peter A. Diamond, 1967. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparison of Utility: Comment," Journal of Political Economy, University of Chicago Press, vol. 75, pages 765.
  17. Mark J. Machina & David Schmeidler, 1990. "A More Robust Definition of Subjective Probability," Discussion Paper Serie A 306, University of Bonn, Germany.
  18. Hervé Crès & Itzhak Gilboa & Nicolas Vieille, 2011. "Aggregation of multiple prior opinions," Post-Print hal-00656618, HAL.
  19. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309.
  20. DEÂ MEYER, Bernard & MONGINÂ , Philippe, 1994. "A Note on Affine Aggregation," CORE Discussion Papers 1994014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  21. DREZE, Jacques & GOLLIER, Christian, . "Risk sharing on the labour market and second-best wage rigidities," CORE Discussion Papers RP 1073, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  22. 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.
  23. Ben-Porath, Elchanan & Gilboa, Itzhak & Schmeidler, David, 1997. "On the Measurement of Inequality under Uncertainty," Journal of Economic Theory, Elsevier, vol. 75(1), pages 194-204, July.
  24. Thibault Gadjos & Eric Maurin, 2002. "Unequal Uncertainties and Uncertain Inequalities : An Axiomatic Approach," Working Papers 2002-32, Centre de Recherche en Economie et Statistique.
  25. Drummond, Michael F. & Sculpher, Mark J. & Torrance, George W. & O'Brien, Bernie J. & Stoddart, Greg L., 2005. "Methods for the Economic Evaluation of Health Care Programmes," OUP Catalogue, Oxford University Press, edition 3, number 9780198529453, July.
  26. Epstein, Larry G & Segal, Uzi, 1992. "Quadratic Social Welfare Functions," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 691-712, August.
  27. Kihlstrom, Richard E. & Mirman, Leonard J., 1974. "Risk aversion with many commodities," Journal of Economic Theory, Elsevier, vol. 8(3), pages 361-388, July.
  28. Antony Millner, 2013. "On Welfare Frameworks and Catastrophic Climate Risks," CESifo Working Paper Series 4442, CESifo Group Munich.
  29. repec:hal:journl:halshs-00085940 is not listed on IDEAS
  30. Millner, Antony, 2013. "On welfare frameworks and catastrophic climate risks," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 310-325.
  31. Walter Nicholson & Karen Needels, 2006. "Unemployment Insurance: Strengthening the Relationship between Theory and Policy," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 47-70, Summer.
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