EXAM Flashcards
consists of a number of programs though which the government pursues the goal of social protection on behalf of citizens against certain categories of risk, of social assistance for the needy,and of encouraging the consumption of certain services such as education, housing, and childcare
Welfare State
results from Rawls’s starting point. He invites us to contemplate a group of rational individuals, each concerned only with his own self-interest, coming together to negotiate principles to determine the distribution of goods. They are free agents in the negotiation, but they must abide by the resulting principles.
Social Contract
- information asymmetry while making decisions. 2. hypothetical situation in which rational Individuals in the original position have to negotiate a Just constitution for a country in which they will all have to live, but without knowing who they will be i.e. whether they will be born as one of most or the least fortunate
Veil of Ignorance
provide guidance for behaving good and keeping away from bad behaviors, sets the stage for coherent environment which contains justice, honesty, neutrality, and responsibility
Ethical Norms
disinterested and selfless concern for the well-being of others
Altruism
a system under which an authority undertakes to supply needs or regulate conduct of those under its control in matters affecting them as individuals as well as in their relations to authority and to each other
Paternalism
the integration of political and economic factors in our analysis of modern society
Political Economy
disable the efficient working of the market.
Market Failure
occurs when the government intervenes to correct a market failure but ends up causing a net loss of economic welfare
Government Failure
the state or quality of being efficient, or able to accomplish something with the least waste of time and effort; competency in performance. accomplishment of or ability to accomplish a job with a minimum expenditure of time and effort.Economic efficiency is about making the best use of limited resources given people’s tastes. It involves the choice of an output bundle.
Efficiency
goal relating to the way in which resources should be distributed or shared between individuals, hence synonymous with social justice;
Equity
Beveridgean (+countries)
health care system for all its citizens financed through income tax payments.Financing: Taxes. Redistribution. Coverage: entire population
Countries: Germany, Austria
Bismarckian (+countries)
health care system in which workers pay a fee to a fund that in turn pays health care activities.Financing: Social Insurance Contribution. No redistribution between income groups. Coverage: workers
Countries: GER, AU, SWISS
Welfare Regimes
liberal: means-tested assistance for low-income households predominates (UK, US, Canada, Australia)
*corporatist: social insurance with little redistribution (Germany, Austria, France, Italy)
*social democratic: universalistic, generous, redistributive (Nordic countries)
the strength of social entitlements and citizens’degree of immunization from market dependency (high in socialdemocratic regime, low in liberal regime, in between in the corporatistregime)
Decommodication
optimizing a person’s standard of living through an appropriate balance between savings and consumption over time.People desire to have a rather stable path of consumption
Consumption Smoothing
suffer from risky outcomes; they preferconsumption smoothing across risky states. To avoid risky outcomes, they are willing to pay the risk premium
Risk Averse
individuals may face risk, but groups can face approximately certainty
Law of large numbers
amount of money an individual or entity is willing to accept with certainty in light of the uncertain outcome or risk covered by the insurance policy
Certainty Equivalent
the premium of individual is equal to expected costs for the insurance company
Actuarial Insurance
occurs where the insurer has less information than the person buying insurance
Asymmetric Information
Adverse Selection
If information is imperfect before signing the contract.
arises where the purchaser can conceal from the insurer that he is a high risk before signing the contract,
example: conceal potential ill-health from medical insurers.
Moral Hazard
- problem: information asymmetry
- a change in behaviour is induced after the conclusion of an insurance contract
- change in behaviour cannot be observed by the insurer
Pregnancy, for example, can be the result of deliberate choice. Thus the probability cannot be regarded as exogenous, and individual medical cover will generally exclude the costs of a normal pregnancy
Ex-ante moral hazard
Insurance-induced change in behaviour before loss occurs.
less effort to avoid risk, as risk is insured and behaviour not observable.
e.g.: inadequate securing of the bicycle in the case of insurance against bicycle thef
Ex-post moral hazard
○ insurance-related change in behaviour after the occurrence of damage
○ excessive claiming of insurance benefits, since no damage but only expenditure can be
observed
○ e.g. unnecessary cures in case of illnes
Pooling Equilibrium
where bad and good risks choose identical contracts
Seperating Equilibrium
where bad and good risks choose different contracts
mandatory and not based exclusively on actuarial insurance and involves non-risk related redistribution.Typical characteristics are: public provision, financing by payroll taxes.
Social Insurance
is measured by the difference between utilities, realincomes, or profits before and after imposing the tax
Tax burden
effect of a particular tax on the distribution of economic welfare, taking into account tax induced price changes
Tax Incidence
Distortionary taxation of labor…
reduces the price of leisure to (1 - t)w (substitution effect) and decreases real income (income effect).
utility loss due to distortionary taxation
DWL
provision of goods, services, or other tangible resources instead of cash as a form of assistance or support.
In-kind Transfers
Efficiency Arguments In-kind transfers
- Consumers are poorly informed or act with bounded rationality.
- Existence of positive externalities
- The recipient of the transfer (e.g., parents) does not act in the best interest of the target person.
- Due to a lack of information, governments cannot identify those in need and save money if the transfer in kind is of no benefit to the non-needy.
Absolute Poverty
inability to meet most basic needs (e.g. food)
Relative Poverty
income falls below a certain percentage of median income
pecified income or consumption level used as a benchmark to determine whether individuals or households are living in poverty.
Poverty Line
Poverty Rate
Ratio of the number of people who fall below the poverty line and the total population
Poverty Gap
percentage by which mean income falls below poverty line.
