Aggregate risk and the Pareto principle

Nabil I. Al-Najjar; Luciano Pomatto

doi:10.1016/j.jet.2020.105084

Aggregate risk and the Pareto principle

Nabil I. Al-Najjar, Luciano Pomatto^*

^*Corresponding author for this work

Managerial Economics, Decision Sciences and Operations

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

Abstract

In the evaluation of public policies, a crucial distinction is between plans that involve purely idiosyncratic risk and those that generate correlated, or aggregate, risk. While natural, this distinction is not captured by standard utilitarian aggregators. In this paper we revisit Harsanyi's (1955) celebrated theory of preferences aggregation and develop a parsimonious generalization of utilitarianism. The theory we propose captures sensitivity to aggregate risk in large populations and can be characterized by two simple axioms of preferences aggregation.

Original language	English (US)
Article number	105084
Journal	Journal of Economic Theory
Volume	189
DOIs	https://doi.org/10.1016/j.jet.2020.105084
State	Published - Sep 2020

Keywords

Aggregate risk
Harsanyi's theorem
Preference aggregation

ASJC Scopus subject areas

Economics and Econometrics

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10.1016/j.jet.2020.105084

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title = "Aggregate risk and the Pareto principle",

abstract = "In the evaluation of public policies, a crucial distinction is between plans that involve purely idiosyncratic risk and those that generate correlated, or aggregate, risk. While natural, this distinction is not captured by standard utilitarian aggregators. In this paper we revisit Harsanyi's (1955) celebrated theory of preferences aggregation and develop a parsimonious generalization of utilitarianism. The theory we propose captures sensitivity to aggregate risk in large populations and can be characterized by two simple axioms of preferences aggregation.",

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AU - Pomatto, Luciano

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N2 - In the evaluation of public policies, a crucial distinction is between plans that involve purely idiosyncratic risk and those that generate correlated, or aggregate, risk. While natural, this distinction is not captured by standard utilitarian aggregators. In this paper we revisit Harsanyi's (1955) celebrated theory of preferences aggregation and develop a parsimonious generalization of utilitarianism. The theory we propose captures sensitivity to aggregate risk in large populations and can be characterized by two simple axioms of preferences aggregation.

AB - In the evaluation of public policies, a crucial distinction is between plans that involve purely idiosyncratic risk and those that generate correlated, or aggregate, risk. While natural, this distinction is not captured by standard utilitarian aggregators. In this paper we revisit Harsanyi's (1955) celebrated theory of preferences aggregation and develop a parsimonious generalization of utilitarianism. The theory we propose captures sensitivity to aggregate risk in large populations and can be characterized by two simple axioms of preferences aggregation.

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KW - Harsanyi's theorem

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Aggregate risk and the Pareto principle

Abstract

Keywords

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