Original position veil of ignorance o Maxmin criterion government should aim to

Original position veil of ignorance o maxmin

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“Original position” + “veil of ignorance” o Maxmin criterion – government should aim to maximize the wellbeing of the worst off person in society Maximum minimum utility, more egalitarian than utilitarianism o Social insurance – government policy aimed at protecting people against the risks of adverse events Libertarianism – government should punish crimes and violations of agreements but not redistribute income o Society itself earns no income – only individuals do
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o Evaluates the process not the outcomes If income distribution arises unfairly then the government has a right to intervene But if the process is fair then the distribution is fair o Equality of opportunity is more important than equality of incomes o “What each person gets he gets from others in exchange for something” Policies to reduce poverty: o Minimum wage – depends on elasticity of labor demand o Welfare – government programs that supplement the incomes of the needy May create incentives for people to become needy There must be some need in addition to the poverty o Negative income tax – tax systems that collects revenue from high income households and subsidizes low income households Poor families receive assistance without any need Only qualification is low income EITC o In-kind transfers – provide people directly with the goods and services they need SNAP, Medicaid In-kind (inefficient, disrespectful) v cash (can be taken advantage of) Many policies have the unintended effect of discouraging the poor to escape their poverty o The programs are tied to income, creates culture of poverty o But a more gradual fade out of assistance increases the price of the programs Workfare – requires person taking benefits to take a government provided job Gov can only provide these programs to people for a limited amount of time, gets rid of culture of poverty Lorenz curve – graphical representation of the distribution of income or of wealth, diagonal line is perfectly equal, straight line up at the very end is perfectly unequal Gini coefficient – a measure of inequality, 0 is perfect equality, 1 is perfect inequality o A/A+B
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Why has income inequality risen recently? o Tech creates more demand for skilled labor o Globalization (trade and immigration) o De-unionization o Increase in divorce rates (more single parent households) o More women in the workforce (increased concentration of wealth) Countries that are less market based have less inequality Taxes will decrease inequality and lower the Gini coefficient Measures of poverty usually depends on family size, issues are: o Illness and disability may not be accounted for o Geographic location and cost of living o Ignores assets you have o Ignores in-kind transfers Quick note on Nash equilibria: Nash equilibrium – an equilibrium where no player has any incentive to change their action How to find Nash eq: o Look for a dominant strategy
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