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Catastrophic Risk and Egalitarian Principles for Risk Transfer Mechanisms

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  • Franz E. Prettenthaler

Abstract

Financial aid for the worst-off victims of earthquakes and other catastrophes seems to be a morally unquestioned principle for the allocation of public funds. This paper shows however, that this principle is ambiguous if the decision is viewed as a dynamic choice problem where such resources need to be allocated in two periods: before and after the event takes place (before and after uncertainty is resolved). The literature on social choice suggests that utilitarian principles fare better in such situations. This paper provides a uniform formal framework to relate one such result, namely a multi-profile version of Harsanyis 1955 theorem by Mongin (1994) to another one by Myerson (1981), stated in a somewhat unconventional social choice framework. It shows that the linearity condition, that is met only by welfare functions of the utilitarian type, has a natural interpretation in terms of an equivalence of ex-ante and ex-post evaluation, a concept that is related to but not equivalent with dynamic consistency.

Suggested Citation

  • Franz E. Prettenthaler, 2008. "Catastrophic Risk and Egalitarian Principles for Risk Transfer Mechanisms," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 128(4), pages 549-560.
    • Handle: RePEc:aeq:aeqsjb:v128_y2008_i4_q4_p549-560
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    Cited by:

    1. Ling Tian & Peng Yao, 2015. "Preferences for earthquake insurance in rural China: factors influencing individuals’ willingness to pay," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 79(1), pages 93-110, October.

    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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