Aggregate risk and the Pareto principle (Q2211474)

The paper deals with the evaluation of public policies, where scenarios that are affected by purely idiosyncratic risks are clearly distinguished from those in which correlated risks are present, as risks associated with catastrophic pandemics or systemic failures of a financial system. Since this important distinction is not captured by standard utilitarian aggregators, the authors deepen and revisit Harsanyi's theory of preferences aggregation, in order to obtain a new parsimonious generalization of utilitarianism. The idea that inspires this study stems from the need to avoid the rigidity of specific regulatory considerations for or against aggregate risk, but rather to create a scheme that incorporates sensitivity to correlation based on few ``transparent'' principles.