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Aggregate Risk and the Pareto Principle

Al-Najjar, Nabil I. and Pomatto, Luciano (2018) Aggregate Risk and the Pareto Principle. . (Unpublished)

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In the evaluation of public policies, a crucial distinction is between plans that involve purely idiosyncratic risk and policies that generate aggregate, correlated 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 can capture sensitivity to aggregate risk in large populations and can be characterized by two simple axioms of preferences aggregation.

Item Type:Report or Paper (Working Paper)
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URLURL TypeDescription Paper
Pomatto, Luciano0000-0002-4331-8436
Additional Information:We thank Larry Blume, Amrita Dhillon, Federico Echenique, Atsushi Kajii, Edi Karni, and Kota Saito for their valuable comments.
Record Number:CaltechAUTHORS:20190405-092508707
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:94493
Deposited By: Tony Diaz
Deposited On:05 Apr 2019 16:44
Last Modified:05 Apr 2019 16:44

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