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Insurance Subsidies and Welfare Economics

John D. Long
The Journal of Risk and Insurance
Vol. 39, No. 3 (Sep., 1972), pp. 341-349
DOI: 10.2307/251825
Stable URL: http://www.jstor.org/stable/251825
Page Count: 9
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Insurance Subsidies and Welfare Economics
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Abstract

The introduction of subsidies into insurance rates constitutes a type of quasi-welfare payment but leaves open the question of whether social welfare is increased, decreased, or unchanged by the subsidies. Welfare economists have developed an elegant and promising array of tools for attacking such a question. These tools include the Pareto optimum, the Bergson welfare function, and the compensation principle. Upon analysis, however, the difficulty in making interpersonal comparisons of utility is a major obstruction in the use of the tools. Consequently, any answer to the question is nothing more nor less than a value judgment and should be recognized as such.

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