IDEAS home Printed from https://ideas.repec.org/p/ums/papers/2000-03.html
   My bibliography  Save this paper

Risk Aversion, Insurance, and the Efficiency-Equality Tradeoff

Author

Listed:
  • Samuel Bowles

    (University of Massachusetts Amherst)

  • Herbert Gintis

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.

Suggested Citation

  • Samuel Bowles & Herbert Gintis, 2000. "Risk Aversion, Insurance, and the Efficiency-Equality Tradeoff," UMASS Amherst Economics Working Papers 2000-03, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2000-03
    as

    Download full text from publisher

    File URL: http://www.umass.edu/economics/publications/econ2000_03.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Atanu Saha & C. Richard Shumway & Hovav Talpaz, 1994. "Joint Estimation of Risk Preference Structure and Technology Using Expo-Power Utility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(2), pages 173-184.
    2. Abhijit V. Banerjee & Andrew F. Newman, 1991. "Risk-Bearing and the Theory of Income Distribution," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 211-235.
    3. 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 277-281, September.
    4. Rosenzweig, Mark R & Wolpin, Kenneth I, 1993. "Credit Market Constraints, Consumption Smoothing, and the Accumulation of Durable Production Assets in Low-Income Countries: Investment in Bullocks in India," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 223-244, April.
    5. Jeffery R. Williams & Gordon L. Carriker & G. Art Barnaby & Jayson K. Harper, 1993. "Crop Insurance and Disaster Assistance Designs for Wheat and Grain Sorghum," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 435-447.
    6. Case, Anne & Deaton, Angus, 1998. "Large Cash Transfers to the Elderly in South Africa," Economic Journal, Royal Economic Society, vol. 108(450), pages 1330-1361, September.
    7. 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 769-797, August.
    8. Rosenzweig, Mark R & Binswanger, Hans P, 1993. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Economic Journal, Royal Economic Society, vol. 103(416), pages 56-78, January.
    9. 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.
    10. Bardhan, Pranab & Bowles, Samuel & Gintis, Herbert, 2000. "Wealth inequality, wealth constraints and economic performance," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 10, pages 541-603, Elsevier.
    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.
    12. Jean-Jacques Laffont & Mohamed Salah Matoussi, 1995. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(3), pages 381-399.
    13. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 35-52.
    14. Dilip Mookherjee, 1997. "Informational Rents and Property Rights in Land," International Economic Association Series, in: John E. Roemer (ed.), Property Relations, Incentives and Welfare, chapter 1, pages 3-42, Palgrave Macmillan.
    15. Evsey D. Domar & Richard A. Musgrave, 1944. "Proportional Income Taxation and Risk-Taking," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 58(3), pages 388-422.
    16. 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.
    17. 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.
    18. Sinn, Hans-Werner, 1990. "Expected utility, μ-σ preferences, and linear distribution classes: A further result," Munich Reprints in Economics 19847, University of Munich, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bardhan, Pranab & Bowles, Samuel & Gintis, Herbert, 2000. "Wealth inequality, wealth constraints and economic performance," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 10, pages 541-603, Elsevier.
    2. Carter, Michael R. & Zimmerman, Frederick J., 2000. "The dynamic cost and persistence of asset inequality in an agrarian economy," Journal of Development Economics, Elsevier, vol. 63(2), pages 265-302, December.
    3. Besley, Timothy, 1995. "Savings, credit and insurance," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 36, pages 2123-2207, Elsevier.
    4. Ravallion, Martin, 2003. "Targeted transfers in poor countries : revisiting the tradeoffs and policy options," Policy Research Working Paper Series 3048, The World Bank.
    5. Samuel Bowles, 2000. "Globalization and Redistribution: Feasible Egalitarianism in a Competitive World," Working Papers wp34, Political Economy Research Institute, University of Massachusetts at Amherst.
    6. Dilip Mookherjee, 1999. "Contractual Constraints on Firm Performance in Developing Countries," Boston University - Institute for Economic Development 98, Boston University, Institute for Economic Development.
    7. Samuel Bowles, 2019. "Globalization versus redistribution? Egalitarian policies in a competitive world economy," Indian Economic Review, Springer, vol. 54(1), pages 89-112, December.
    8. Asli Demirgüç-Kunt & Ross Levine, 2009. "Finance and Inequality: Theory and Evidence," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 287-318, November.
    9. Malcolm Keswell & Michael R. Carter, 2011. "Poverty and Land Distribution: Evidence from a Natural Experiment," WIDER Working Paper Series wp-2011-046, World Institute for Development Economic Research (UNU-WIDER).
    10. Mariapia MENDOLA, 2005. "Farm households production theories: a review of institutional and behavioural responses," Departmental Working Papers 2005-01, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    11. Jayadev, Arjun & Bowles, Samuel, 2006. "Guard labor," Journal of Development Economics, Elsevier, vol. 79(2), pages 328-348, April.
    12. Roland Benabou, 2002. "Tax and Education Policy in a Heterogeneous-Agent Economy: What Levels of Redistribution Maximize Growth and Efficiency?," Econometrica, Econometric Society, vol. 70(2), pages 481-517, March.
    13. Christopher B. Barrett, 2005. "Rural poverty dynamics: development policy implications," Agricultural Economics, International Association of Agricultural Economists, vol. 32(s1), pages 45-60, January.
    14. Gharad Bryan & Shyamal Chowdhury & A. Mushfiq Mobarak, 2011. "Seasonal Migration and Risk Aversion," Working Papers id:4650, eSocialSciences.
    15. Morduch, Jonathan, 1999. "Between the State and the Market: Can Informal Insurance Patch the Safety Net?," The World Bank Research Observer, World Bank, vol. 14(2), pages 187-207, August.
    16. Pranab Kumar Das & Bhaswati Ganguli & Sugata Marjit & Sugata Sen Roy, 2018. "The Dynamics of Finance-Growth-Inequality Nexus: Theory and Evidence for India," CESifo Working Paper Series 7429, CESifo.
    17. Robinson, James A. & Baland, Jean-Marie, 2003. "Land and Power," CEPR Discussion Papers 3800, C.E.P.R. Discussion Papers.
    18. Gharad Bryan & Shyamal Chowdhury & Ahmed Mushfiq Mobarak, 2014. "Underinvestment in a Profitable Technology: The Case of Seasonal Migration in Bangladesh," Econometrica, Econometric Society, vol. 82(5), pages 1671-1748, September.
    19. Zimmerman, Frederick J. & Carter, Michael R., 2003. "Asset smoothing, consumption smoothing and the reproduction of inequality under risk and subsistence constraints," Journal of Development Economics, Elsevier, vol. 71(2), pages 233-260, August.
    20. Sen, Debapriya, 2011. "A theory of sharecropping: The role of price behavior and imperfect competition," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 181-199.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ums:papers:2000-03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Daniele Girardi (email available below). General contact details of provider: https://edirc.repec.org/data/deumaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.