Risk Aversion, Insurance, and the Efficiency-Equality Tradeoff

Authors

Samuel Bowles
Herbert Gintis

Working Paper Number

2000-3

Publication Date

2000

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.

DOI

https://doi.org/10.7275/1072040

Recommended Citation

Bowles, Samuel and Gintis, Herbert, "Risk Aversion, Insurance, and the Efficiency-Equality Tradeoff" (2000). Economics Department Working Paper Series. 83.
https://doi.org/10.7275/1072040