Seminars & webinars
17 December 2015

Fairness in Cost Benefit Analysis: Equity-Enhanced Mean Variance Rules


Where: Venice
Location:

Fondazione Eni Enrico Mattei
Isola di San Giorgio Maggiore
30124 Venice

***
Video-conference
at FEEM Milan

How to reach: Google map
Event's Timetable:


h. 12.00 Seminar

Information:

Seminars Office, seminars@feem.it

Speakers:

Maddalena Ferranna, Toulouse School of Economics

Abstract

Standard cost-benefit analysis is inadequate for large scale social risks (natural disasters, technological accidents, terrorism) because it rests on the unrealistic assumption of perfect risk sharing. As a consequence, it focuses only on the aggregate effects of the risk, while it neglects both the distributional consequences (who suffers more?) and the interdependencies of individual risks (how many people will suffer?).

This paper proposes a new approach to address those limitations, the equity-enhanced mean variance rule. The rule is derived by extending the classic Arrow-Pratt approximation of the certainty equivalent to a framework that accounts for heterogeneity and distributive justice. Two approaches to equity are compared and implemented: the first expresses concerns for the heterogeneity of individual risks (ex-ante equity); the second represents concerns for the collective realization of individual risks and resulting inequalities or correlated effects (ex-post equity). The equity-enhanced mean variance rule will depend on the type of equity concerns, and on few, easily computable parameters: risk and inequality indices, Society's inequality aversion and individuals' average risk aversion. As an application, I discuss the equity-efficiency tradeoff associated to the National Flood Insurance Program in the United States.

Download file
Download PDF file
Download file
Download PDF file
Fairness in Cost Benefit Analysis: Equity-Enhanced Mean Variance Rules

FEEM Update

Subscribe to stay connected.

Your personal data will be processed by Fondazione Eni Enrico Mattei. – data Controller – with the aim of emailing the FEEM newsletter. The use of Your email address is necessary for the implementation of the newsletter service. You are invited to read the Privacy Policy in order to obtain additional information about the protection of Your rights.

This Website uses technical cookies and cookie analytics, as well as “third party” profiling cookies.
If you close this banner or you decide to continue navigating on this Website, you express consent to the use of cookies. If you need additional information or you wish to express selective choices on the use of cookies, please refer to the   Cookie PolicyI agree