The welfare state and fairness in markets
Project manager: Alexander Cappelen
Start date: 1.1.2016
End date: 31.7.2018
Almost all developed economies combine a market economy with a welfare state. Two essential roles of the welfare state are to handle inequalities created in markets and to provide insurance for market risks faced by individuals. The sustainability of the welfare state depends critically on its ability to fulfill these roles and to handle the potential trade-off between fairness and efficiency. The research project aims to provide new knowledge about how people perceive fairness in a market setting and what is seen as legitimate ways for the welfare state to respond to inequalities and risks in a market economy.
The first part of the research project uses economic experiments and survey studies to examine how the perceived fairness of income inequalities generated in markets depends on the source of these inequalities. In two subprojects we address issues related to the role of competition in justifying income inequalities, including gender inequalities in income, as well as people's views on fair prices in a setting with imperfect competition. In this part we also examine what people view as fair executive compensation.
In the second part of the research project we aim to study when it is seen as legitimate to compensate unlucky risk takers. In particular we will examine the extent to which attitudes to social insurance take account of what alternatives people are facing when they make risky decisions. To better understand international differences in attitudes to social insurance, we also plan to conduct a survey study in selected European countries and in the US.
In the third part of this research project we aim to use a novel experimental technique to examine how people make the trade-off between fairness and efficiency and whether this trade-off primarily is determined by fairness preferences or by risk preference. In this part we also aim to contribute to the literature on how market interactions might crowd out moral motivation.