Aggregate risk and the Pareto principle

Nabil I. Al-Najjar, Luciano Pomatto*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-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 languageEnglish (US)
Article number105084
JournalJournal of Economic Theory
Volume189
DOIs
StatePublished - Sep 2020

Keywords

  • Aggregate risk
  • Harsanyi's theorem
  • Preference aggregation

ASJC Scopus subject areas

  • Economics and Econometrics

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