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I mentioned above an important question regarding the hypothetical insurance approach, concerning the nature of the move from personal hypothetical insurance decisions to a tax system. The issue is whether it is necessary to produce a personalised

180 tax rate for each individual.490 Different people have different attitudes to risk under uncertainty and would choose different levels of hypothetical insurance coverage as a result. Some would be concerned to maximise their income should they turn out to be unfortunate—maximinimising—while others would be willing to take the risk of destitution for the tiny chance of being super-rich—maximising. Tax rates could be personalised based upon each person’s preferences and attitude to risk under uncertainty, and ideally, people would have personalised tax rates based upon their risk profiles.

As I have described it above, however, hypothetical insurance would apply a single tax- rate to all in society, based on the presumed average level of coverage that people would choose. If this universal approach is taken, some may feel their ambitions and values are not respected. This would appear problematic because the advantage of equality of resources over alternative views is its ambition-sensitivity.491 Those who would be willing to risk extreme poverty in order to have the chance to earn huge amounts would have a claim to less progressive taxation should they prove to be high earners.492 Additionally, those who would wish to avoid the risk of low income would have a claim if they would not have taken the risk in the hope of high income and hence purchased a very high level of low-pay compensation coverage. Those in the other extreme positions—paying less tax and receiving more benefits—might not complain that they are better-off than their hypothetical insurance decisions would have created, but this would only be because they were willing to benefit from injustice.

490

The problems with equality of resources if it did take this personalised approach are considered in Robert Van Der Veen, 'Equality of Talent Resources: Procedures or Outcomes?', Ethics, 113/1 (2002), 55-81 at 79-80.

491 _{Ronald Dworkin, 'Sovereign Virtue Revisited', Ibid., 106-43 at 111.}

492 _{Such persons are referred to as Nietzschean maximisers in Robert Van Der Veen, 'Equality of}

181 In practice, it will often be necessary to choose hypothetical insurance rates on people’s behalf. This is because the collection of the information required to design personalised taxes would be hugely problematic; if even possible, it would be overly expensive. One method to obtain this information would be to ask people what coverage they would have chosen if they did not know their current income. However, this would be unreliable, since people could report their hypothetical decisions consciously or unconsciously with knowledge of their relative fortune. An alternative to the reliance upon asking people would be to base coverage levels upon observations of the risk profile of each individual by observing their actions and choices. However, even this would not get around the problem, since people would potentially change their actions in order to improve their tax-rate. People with rare and valuable talents would have an incentive to take big risks in order to lower their personalised tax-rates. Meanwhile, those without any valuable talents would take fewer risks than they otherwise would in order to maximise their low-income earnings. This makes such an approach—even if feasible—unreliable also.493

Even if it were deemed possible to obtain reliable and authentic information, there are still reasons to choose the averaged approach. Obtaining the reliable information required about each individual in order to make such decisions would be a hugely expensive undertaking. Indeed, attempting to determine actual views may be much more expensive than applying the average level, such that even those with the preferences that come out badly would be worse-off due to the administrative costs of

493

Furthermore, these two activities together would tend to undermine any such scheme; there would be more requirements to pay out to the low-earners yet smaller payments received from high-earners. Such a process would have similarities to common presentation of Californian referendum politics whereby people consistently vote in referendums for lower taxes and more expensive services. These inconsistent decisions then result in regular budget crises, though this received wisdom has been scrutinized by John G. Matsusaka, 'Direct Democracy and Fiscal Gridlock: Have Voter Initiatives Paralyzed the California Budget?', State Politics & Policy Quarterly, 5/3 (2005), 248-64.In the hypothetical insurance setting, the result would be that those who could change their behaviour in the beneficial way would be able to improve their position relative to those who could not change their behaviour. If everyone found it equally easy and costless to change their behaviour in order to rig the result, then it would seem that those with bad market luck would be worse off.

182 the scheme. Given that no-one would then benefit from the personalised approach, everyone would accept this as superior. It therefore shows greater concern to impose a universal approach.494

A potentially problematic claim that Dworkin makes to further defuse worries about universalising is that people would only choose from a small range of policies.495 Since no-one’s choice would therefore deviate very much from the average it is acceptable to impose this average level. In response to this, Robert Van Der Veen points out that people have a wide range of attitudes to risk, and that imposing an average is less legitimate than Dworkin assumes.496 Dworkin’s narrow-range assumption is a potentially controversial empirical claim, and may prove not to be true. If there were a large deviation in the range of insurance coverage people would choose, would the imposition of an average be acceptable? As explained above, people would have will be strongly inclined to the universal approach due to the problems with a personalised approach.

In response to Van Der Veen, it is important to note that there is a difference between the range of views regarding risk and the corresponding range of hypothetical insurance choice. While people have very different attitudes to risks, the sensible insurance options available would be in a smaller range. This is because insurers would take account of the moral hazards and disincentives produced by the chosen level of insurance.497 So those who would wish to maximise the prospects of those in the

494 _{Dworkin, 'Sovereign Virtue Revisited', at 112. Ripstein highlights that it is acceptable to hold}

people to hypothetical choices because equality of resources is an attempt—like that of Rawls—to determine background conditions on private interactions. This means that it does not depend upon actual choices and actions, Arthur Ripstein, 'Liberty and Equality', in Arthur Ripstein (ed.), Ronald Dworkin (London: Cambridge Univ. Press, 2007), 82-108 at 103.

495

Dworkin, Sovereign Virtue at 102-3, 333, Dworkin, 'Sovereign Virtue Revisited', at 111-2, Dworkin, Justice for Hedgehogs at 360-1.

496 _{Van Der Veen, 'Equality of Talent Resources: Procedures or Outcomes?', at 79.} 497

Dworkin, Sovereign Virtue at 334-5. Dworkin there refers to the maximin approach as a bad bet because he takes it to mean the most redistributive policy, but I here refer to it as the most redistributive policy available once the incentive, administrative, and moral hazard costs are factored in.

183 lowest position—to maximinimise—would have to take account of incentive effects and the increased scope for—and therefore costs of—fraud.498 As a result, those with an extreme aversion to risk would not choose to equalise income. Therefore, the sensible insurance options would be of a smaller range than the range of attitudes to risk, making the imposition of an imputed average on all members even less troubling.

The imposition of assumed average insurance coverage does not undermine the hypothetical insurance solution; it is perfectly consistent with it. People individually would choose the universal approach, meaning that it would pass the first-person or continuity test. I will now discuss another claimed problem with hypothetical insurance, that it would mimic utilitarianism and therefore be inegalitarian.