Quadratic Social Welfare Functions

Epstein, Larry G.; Segal, Uzi

doi:10.1086/261836

Cited by 106 publications

(72 citation statements)

References 17 publications

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“…Therefore, the proof holds true for any social welfare function that respects SOSD. For example, maximin (Rawls (2009)) and leximin (Sen (1977)) social preferences, which put all their weight on the worse-off members of society, and the quadratic social welfare function (Epstein and Segal (1992)), which maximizes a mean-variance value function of the interim utilities, all respect SOSD.…”

Section: Discussionmentioning

confidence: 99%

Information Design in Insurance Markets: Selling Peaches in a Market for Lemons

2018

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper characterizes the optimal information structure in competitive insurance markets with adverse selection. A regulator assigns ratings to individuals according to their risk characteristics, insurers offer fixed insurance contracts to each rating group, and the market clears as in Akerlof (1970). The optimal rating system minimizes ex-ante risk subject to participation constraints. We prove that in any such market there exists a unique optimal system under which all individuals trade and the ratings match low risk types with high risk types negative assortatively. A simple algorithm yields the optimal system. We examine implications for government regulations of insurance markets. JEL-Codes: D820. Terms of use: Documents in

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Section: Discussionmentioning

confidence: 99%

Information Design in Insurance Markets: Selling Peaches in a Market for Lemons

2018

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“…To comply with Diamond's (1967) thesis that ex ante inequality matters and that it is normatively inappropriate to require that society and individuals abide by the same decision rule, Epstein and Segal (1992) drop the assumption of expected social utility and propose in the context of risk an axiom which captures a social preference for randomization: If society is indifferent between prospect u and prospect v, but some individuals strictly prefer u to v and some other individuals strictly prefer v to u, then any prospect that is a strictly convex combination of u and v should be strictly preferred to u. They also introduce an axiom of mixture symmetry, which prescribes that if society is indifferent between two prospects, then any mixture is socially indifferent to its symmetric counterpart.…”

Section: Related Literaturementioning

confidence: 99%

Fair social decision under uncertainty and belief disagreements

Hayashi

Lombardi

2018

Econ Theory

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This paper aims to address two issues related to simultaneous aggregation of utilities and beliefs. The first one is related to how to integrate both inequality and uncertainty considerations into social decision making. The second one is related to how social decision should take disagreements in beliefs into account. To accomplish this, whereas individuals are assumed to abide by Savage model's of subjective expected utility, society is assumed to prescribe, either to each individual when the ex ante individual well-being is favored or to itself when the ex post individual wellbeing is favored, acting in accordance with the maximin expected utility theory of Gilboa and Schmeidler (J Math Econ 18:141-153, 1989). Furthermore, it adapts an ex ante Pareto-type condition proposed by Gayer et al. (J Legal Stud 43:151-171, 2014), which says that a prospect Pareto dominates another one if the former gives a higher expected utility than the latter one, for each individual, for all individuals' beliefs. In the context where the ex ante individual welfare is favored, our ex ante Pareto-type condition is shown to be equivalent to social utility taking the form of a MaxMinMin social welfare function, as well as to the individual set of priors being contained within the range of individual beliefs. However, when the ex post individual welfare is favored, the same Pareto-type condition is shown to be equivalent to social utility Special thanks go to Philippe Mongin, whose comments and suggestions have led to substantial improvements in the paper. We are also grateful to an associate editor and two referees of this journal for their helpful and thoughtful comments and suggestions. We are solely responsible for any remaining deficiencies.

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“…First, the assumptions of expected utility and Pareto-efficiency can be weakened and a non-utilitarian social welfare function can be derived that accounts for fairness preferences of the social planner (Epstein and Segal 1992;Kelsey 1994;Wakker and Zank 1999;Grant et al 2006;Zank 2007). However, it is not obvious that a social welfare function should be based on the assumption of non-expected utility evaluation of risky prospects by the social planner.…”

Section: Non-utilitarian Social Welfare Versus All-inclusive Utilitymentioning

confidence: 99%

Individual fairness in Harsanyi’s utilitarianism: operationalizing all-inclusive utility

Trautmann

2008

Theory Decis

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Fairness can be incorporated into Harsanyi's utilitarianism through all-inclusive utility. This retains the normative assumptions of expected utility and Pareto-efficiency, and relates fairness to individual preferences. It makes utilitarianism unfalsifiable, however, if agents' all-inclusive utilities are not explicitly specified. This note proposes a two-stage model to make utilitarian welfare analysis falsifiable by specifying all-inclusive utilities explicitly through models of individual fairness preferences. The approach is applied to include fairness in widely discussed allocation examples.

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Quadratic Social Welfare Functions

Cited by 106 publications

References 17 publications

Information Design in Insurance Markets: Selling Peaches in a Market for Lemons

Information Design in Insurance Markets: Selling Peaches in a Market for Lemons

Fair social decision under uncertainty and belief disagreements

Individual fairness in Harsanyi’s utilitarianism: operationalizing all-inclusive utility

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