Equality of Resources & Risk Preference

Abstract

Ronald Dworkin proposes concept of egalitarian distributive justice based on equality of resources and hypothetical insurance. He concludes that participants in hypothetical insurance market would choose to insure against low level of income-setting floor above what is currently provided by government assistance in the United States-but would not desire insurance at level that would eliminate inequality. Daniel Markovits comes to similar conclusion, and suggests that he is able to provide a more deeply principled theory why significant inequality is consistent with egalitarian ideals. In this paper, I argue that neither Dworkin nor Markovits establishes the degree of inequality that is consistent with egalitarian theory. Both Dworkin and Markovits base their conclusions on Dworkin's concept of hypothetical insurance. Although it is generally understood that the degree of risk aversion plays an important role in actual insurance markets, the level of risk aversion is not major part of Dworkin's or Markovits's analysis. I show that in settings in which labor is factor in production, the level of people's risk aversion is an important element of hypothetical insurance. Depending on the extent of people's risk aversion, egalitarianism understood in terms of hypothetical insurance might tolerate substantial income inequality, or very little inequality. I also defend Dworkin's model of egalitarianism from John Roemer's claim that equality of resources is inconsistent with egalitarianism properly understood because it does not guarantee redistribution in favor of the disabled. I maintain that Roemer's attack inappropriately assumes that utilitarianism is the right foundation for evaluating egalitarianism, even though Dworkin rejects metrics of equality based on welfare.