Economics Department Working Paper Series
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