The uncertain foundations of the welfare state

Alberto Feduzi and Jochen Runde

Journal of Economic Behavior & Organization, 2011, vol. 80, issue 3, 613-627

Abstract: The welfare state is often portrayed as provider of insurance against ‘uncertainties’, in Knight's (1921) sense of the term, which would be refused or underinsured on private markets. This image conflicts with the standard economic model of risk exchange founded on the subjective interpretation of probability, which predicts that all individual uncertainties will be insured by private markets. Our aim in this paper is to explain why this prediction fails and, building on contributions to decision theory that take seriously the idea of Knightian uncertainty, to show why social insurance may be justified.

Keywords: Welfare state; Insurance; Risk; Uncertainty (search for similar items in EconPapers)
JEL-codes: D81 H30 H50 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:80:y:2011:i:3:p:613-627

DOI: 10.1016/j.jebo.2011.06.002

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