Dworkin Notes for September 24

Main points

We went through Dworkin’s theory of equality of resources. Some of the critical points are listed in the (modestly edited) handout.

The main idea of this theory is that markets are essential to defining an equal share of resources. Why? Because the value of one person’s share of resources should reflect opportunity costs, that is, the costs of denying them to other people. How? The market (auction, really) makes the person who winds up with a given thing pay more than others would.

The envy test and insurance

Of course, there are complications. Dworkin makes an early move that we largely accepted, for the sake of spelling out the rest. The move I have in mind consists in identifying a necessary condition of an equal distribution: the distribution satisfies what he calls the envy test.** Given its importance in the article, it went by with very little supporting argument. Should we have been tougher on it?

A (relatively) simple auction would satisfy the envy test: if you wanted a bundle other than your own, you would have bid for the relevant part of it while giving up a less preferred part of your bundle.

But the results of the auction, or the results of the auction over time, would probably fail the envy test. Some people are less productive than others, in the sense that they are less capable of producing stuff that is in demand than others are. This could be because they have handicaps or because what they are good at does not command a high price.

So astigmatic allergic philosophers will not be thrilled with the outcome of the auction, especially as their limitations become obvious over time. We will come to envy the bundle of resources held by the healthy economists. More generally, those with bad health will envy what those with good health can earn.

To bring the distribution of goods back into line with the envy test, Dworkin proposes various insurance schemes. These involve offering insurance to people who know their ambitions in life and the cost of pursuing those ambitions but who do not know whether they have handicaps or skills that are not in demand. They can insure against the economic consequences of being handicapped or out of demand.

To give a convincing description of these insurance markets, Dworkin has to do at least two things. First, he has to make the case for the propriety of excluding certain information. Why, for instance, should we have a hypothetical insurance market against the costs of being blind but not against the costs of having so-called ‘expensive tastes’, for things like plovers’ eggs? Second, he has to show that there could be a coherent description of people who have that combination of knowledge and ignorance, such that we could set the insurance rates to reflect their choices.

This page was written by Eleanor Brown and Michael Green for Freedom, Markets, and Well-Being, PPE 160, Fall 2007.
Freedom, Markets, and Well-Being