Dworkin’s insurance markets Notes for September 18

Main points

We talked about Dworkin’s hypothetical insurance markets. I tried to identify the circumstances in which Dworkin thinks a hypothetical insurance market is called for. Professor Brown explained the intricacies of his discussion of underemployment insurance.

Why hypothetical insurance?

The project is to state what is involved in a society’s treating its members as equals in the distribution of material goods. Treating people as equals means giving them equal shares of resources. When do people have equal resources? When they have what they would have purchased in the auction.

So far so good. But what about people with severe handicaps? They can join the auction just like anyone else. But would putting them in the same auction with the able bodied treat them as equals? Dworkin thinks the answer is no. So he supplements the auction with a hypothetical insurance market. He asks how much insurance against the possibility of being handicapped people would buy if they did not know whether they are handicapped or not. Actually handicapped people would get their share from the auction plus a payout from the hypothetical insurance plan. Able bodied people would get their share from the auction minus the premiums from the hypothetical insurance plan. That is enough to restore equal treatment, according to Dworkin.

Obviously, we need to distinguish the sorts of conditions that are covered by hypothetical insurance plans from those that will not be. We could have hypothetical insurance markets for just about any condition, after all.

The distinction is based on a distinction between people and their circumstances. Society has to treat its members as equals by giving them the opportunity to convert their bad brute luck concerning their circumstances into option luck through the hypothetical insurance market. It does not have to give them the opportunity to convert their bad brute luck concerning the cost of their tastes into option luck through a different hypothetical insurance market. How people deal with the costs of their beliefs and desires is their own responsibility; society is done once it has addressed the circumstances in which they find themselves.

I feel as though I understand the point he’s trying to make, though I have to confess that I run into some difficulty when I try to draw the distinction between person and circumstance myself.

Perhaps I’m trying too hard. Maybe I should be content with saying that there is clearly a distinction even if it is difficult to apply in some particular cases.

Underemployment insurance

Dworkin treats the economic value of one’s talents as part of one’s circumstances. How much others want to pay for what I am good at doing is, of course, not part of me. So we get a second hypothetical insurance market. This market involves insurance for how much income we can earn. Those participating in it seek to insure themselves against getting less income from their talents than they want.

Professor Brown explained how this market works. The conclusion is that people would agree to pay more as their income increases. Why? Because as you get wealthier, additional money matters less to you.

She pointed out that this is not the same thing as a progressive taxation scheme. There is no reason why the hypothetical employment insurance market would settle on increasing rates of taxation as income increases. In fact, there’s no reason why they would settle even on a flat rate of taxation. The percentage of a year’s income that a rich person pays might well be lower than the percentage of a year’s income that a poor person pays. All he has argued is that rich people would put in more dollars than poor people.

Finally, she pointed out an apparent difficulty.

  1. Dworkin won’t offer hypothetical insurance plans based on tastes rather than circumstances.
  2. He will offer insurance against having a certain income.
  3. Income is heavily influenced by personal tastes.

She said that if he had been consistent, the tax would have been levied on people’s talents, that is, what they could have earned, given their talent. Of course, that’s difficult to measure. And it raises the specter of people’s being enslaved by their talents. But it would be more consistent.

This page was written by Michael Green for Freedom, Markets, and Well-Being, PPE 160, Fall 2008. It was posted September 18, 2008.
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