Managing Social Risk: an impartial spectator’s perspective on tradeoffs between inequality and risk

Public risks entail a distribution of risk in groups and members of the society. This paper collects and analyses experimental evidence of a between-subjects research design in which impartial spectators choose their most preferred risk allocation procedure in pairwise comparisons. Risk allocation procedures are conceptualised using two essential dimensions: the level of inequality concerning the distribution of risks and outcomes over various groups and members of the society and the level of risk faced by individuals and society as a whole. In the presence of uncertainty, attitudes towards inequality and risk interact with each other, yet the binary choices of impartial spectators in the experiment allow us to disentangle these motives. Results obtained through a logit model, used to estimate the relative importance of inequality and risk motives, reject the hypothesis that social planners maximize a utilitarian social welfare function with self-regarding preferences as inputs. Instead, they seem to care about ex-ante inequality, ex-post inequality, individual risk and collective risk. Furthermore, the amount of resources available for redistribution and the presence of ex-ante inequality, as well as political orientation and shared experiences with the beneficiaries all moderate attitudes towards inequality and risk. A double clustering estimation procedure also reveals the possibility that social planners are influenced by allocation specific characteristics other than inequality and risk.