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A New Approach to the Ethics of Income Distribution
Abstract disponibile solo in lingua inglese
Both the case for some welfare-state transfers to the poor, and also the losses that result when such transfers are too great, may be better understood by studying the private market for insurance. The article shows that the purchase of insurance is understandable only in terms of the greater value that income has for individuals when an adverse contingency has made them poorer. By drawing on a separate argument of Abba Lerner, it is also demonstrated that the total expected utility for a population that can be generated from an income of a given size is greater when the distribution of income is egalitarian. Asymmetries of information and other difficulties for any private companies that might offer insurance against poverty also entail that only the government can offer certain types of insurance. But the "moral hazard", or the increase in the likelihood that a contingency will occur if there is insurance against that contingency, also shows that sufficiently high levels of redistribution of income will have large costs to the society. The arguments builds upon John Rawls's veil of ignorance and an earlier disproof of the Friedman-Savage analysis of choices involving risk.