Economia e Finanza Pubblica

1. Economia e Finanza Pubblica Pietro Navarra Settimana #1: Libertà e redistribuzione

2. Introduction This lecture is about freedom, its measurement and the policy implications regarding the impact of freedom on the size and scope of the welfare state We develop an empirical measure of freedom consistent with the Millian view of individuality. We show that such a measure drives individual preferences for redistribution as well as cross country differences in welfare spending Unfolding this message we obtain a further important analytical result within the wider picture where the role of liberalism in society is designed. The search for foundations (in terms of freedom) to policy prescriptions as well as the strengthening of the connection between the empirical and the theoretical reflection on freedom led us to advance a line of thought that might salvage liberalism

3. Introduction The literature on the measurement of freedom developed along distinct paths with only occasional cross-references The first body of work is theoretical: it aims at establishing axioms for saying whether a state of affairs is freedom-wise better than another (Sen, 1988; Pattanaik and Xu, 1990; Sugden, 1998; Bavetta & Guala, 2003; Bavetta and Peragine, 2006) The second line of inquiry is empirical: it aims at constructing a set of indices of economic, political and civil liberties to asses their impact on the functioning of the economy and its institutions (Gwartney & Lawson, 2007; Holmes, Fuelner & O'Grady, 2008)

4. Introduction Despite their differences, ranging from objectives to methodology, the relationship between the theoretical and empirical streams of research may be illustrated by means of a two by two table

5. Introduction The first contribution is to provide an account of how we move from the left to the right column of the upper row which consists of a defense of the autonomy freedom measure as compared to other measurements of freedom existing in the literature The second contribution is to defend a theory that accounts for our empirical measure which grounds the results concerning performance upon firm conceptual foundations. The autonomy freedom data collected at the individual level allow us to analyze who the autonomy free individuals are and what they think. We may also examine the correlation between autonomy freedom and other measures of subjective well-being

6. Introduction The third contribution is to investigate the effect that different degrees of autonomy freedom have on both the individuals' preferences for redistribution and the size of the welfare state

7. The value of choice Choiceisimportantforsubstantiveaswellasinstrumentalreasons. Choosing from various options is good in itself, but also because it has an intrinsic procedural value since it fosters the moral and intellectual faculties of a person The substantive aspect of choice captures a quantitative concept of freedom of choice which has been measured by two different metrics: The Simple Cardinality Ordering (SCO): it formalizes axiomatically the idea that the larger the extent of options a decision maker may choose from, the larger hisextentofchoice (Pattanaik and Xu, 1990) Preference Ordering (PO): it considers the individual’s preferences over available opportunities. Freedom of choice is greater where access to more preferred options is wider (Sen, 1991)

8. The value of choice SCO counts the number of available options for the decision-makers, but fails to account for the role of individual preferences PO suggests a solution to take into account the individual preferences, but runs into counter examples and fails to address the procedural value of choice We argued for a measure of freedom of choice grounded on the Millian notion of individuality according to which choice has substantive as well as procedural value Our measure of choice stresses the deliberative (instrumental) aspect of individual decision-making

9. The value of choice According to J. S. Mill (On Liberty), having alternatives to choose from confronts decision makers with a process where the different available courses of action must be weighed Such a process calls for “perception, judgment, discriminative feelings, mental activity, and even moral preference” (Mill, 1859) In so doing, the deliberative process contributes to the development and fostering of the decision maker’s individuality (or autonomy) Choices, when are the outcome of a conscious deliberation, are considered as the true expression of the individual’s self Availability of options (objective component) and the conscious deliberation over these options (subjective component) are the two fundamental elements that shape an individual’s idividuality (autonomy)

10. Measuring autonomy: Intro Our task is to develop an empirical measure of opportunity and to ground it upon firm conceptual basis We shall point out that a particular approach to the measurement of opportunity proposed in the freedom of choice literature sets an environment which is amenable to the success of our task We shall argue that a specific question proposed by the World Value Survey (WVS) captures the notion of autonomy developed by Bavetta and Guala (2003 and 2008) and supported by the axiomatic measure constructed in Bavetta and Peragine (2006) We shall call our empirical measure a measure autonomy freedom (AF)

11. Measuring autonomy: Intro As Bavetta and Guala (2003) write: [t]he main attraction of leading an autonomous life is procedural in character: autonomy provides a certain value to one's action by linking in a coherent fashion one's achievements with one's preferences, as part of a process of self--conscious creation In the ideal autonomous life, what is achieved must have been chosen, what is chosen must have been preferred, and preferences must be `of one's own' (not borrowed, for example, or not hetero--directed) (p. 428)

12. Measuring autonomy: Intro Our measure must then link consistently the theoretical and the empirical measure of autonomy freedom TH: FOC --> preferences --> choice procedural value make chooser potential preferences accountable EM: FOC --> control --> achievements Attribution theory leads from control to achievements If the argument is sustainable, then TH  EM

13. The structure of the argument • To illustrate how such a coherent composition may be obtained, we organize our argument as follows • We start with the reasons for valuing choice • We establish the connection between preferences and choice • We introduce the WVS question that shall be used to measure AF • We show that reference in such a question to ‘freedom of choice’ is coherent with our theoretical interpretation of autonomy as the latter is an integral part of autonomy • We show that reference in such a question to ‘control’ is coherent with our theoretical interpretation of autonomy since autonomous persons are more likely to retain control over life outcomes (achievements) • We further corroborate the relation between AF and control by means of some empirical analysis

14. Reasons for valuing choice According to Sugden (1998) choice is valuable because it fosters the moral and intellectual faculties of the decision maker To choose a person has to resort on her "perception, judgment, discriminative feeling, mental activity, and even moral preference" (Mill, 1859, p. 122), to rely on her ability to connect means and ends, her determination to stick to what has chosen. She must be able to make sense of her selection of a course of action The act of choosing calls for the extensive involvement of the chooser’s qualities. It becomes the focal point around which the exercise of one's own individuality is shaped and even fostered, leading to the strengthening of a person's autonomy

15. Reasoning for valuing choice The value of choice has an evident procedural flavor in the sense that it depends upon the value that may be attributed to the deliberative process that it makes possible Yet, choice has also an instrumental value given by its contribution to the exercise of autonomy: the value of choice derives from the close bonds that tie together the personal involvement in the deliberative process with the exercise of an autonomous behavior The instrumental value ought to be distinguished from other procedural reasons for attributing value to choice that have an intrinsic nature. These are not relevant for our argument as they can hardly be applied to policy (and practical) considerations

16. Preferences and choice Choice is then valuable for procedural and instrumental reasons. The issue is how to measure the procedural and instrumental value of choice The notion of potential preference developed by Sugden (1998) plays a crucial role in linking preferences to choice and in the construction of theoretical underpinnings of our measure of autonomy A preference ranking is potential if it is a ranking that a decision maker might have had, even though it does not represent her actual preferences. Potential preferences liberate opportunity metrics from reliance upon the contingent factors that make an individual prefer what she prefers here and now and allow the measure to focus upon the decision process

17. Preferences and choice Freeing choice from contingent factors shifts the domain of opportunity metric to the pre-deliberation stage of choice (Wertheimer, 1987). There the agent has not yet accomplished the deliberative process that will lead her to an actual choice The pre-deliberation stage of choice is where autonomy freedom should be assessed because then a person refers to those individual and moral qualities that make up her exercise of an autonomous behavior An autonomous person at the pre-deliberation stage is reflecting on the alternative courses of action open for choice calling her personal and moral qualities to bear upon her final decision. And such a process, that will eventually lead to her choice, is mimicked, at this stage, by the careful screening and weighing of her preferences

18. The empirical meassure of autonomy The question we exploit to measure autonomy freedom is: A173 - how much freedom of choice and control. It reads as follows: Some people feel they have completely free choice and control over their life, while other people feel that what they do has no real effect on what happens to them. Please use a ten-point scale in which 1 means none at all and 10 means a great deal to indicate how much freedom of choice and control you have over the way your life turns out For A173 to be consistent with our interpretation of autonomy we need to argue that the concepts of `freedom of choice' and `control' relate to the extent of an individual's autonomous behavior. That is, the more autonomous a person is, the more he enjoys freedom of choice and control

19. Freedom of choice and autonomy Suppose that an additional opportunity is not significant in the sense that no chooser would prefer or could distinguish it from the other available opportunities The principle of addition of insignificant opportunities (ADINS) introduced in the literature claims that accessing an insignificant opportunity does not change value to the choice problem If choice has procedural value, the new problem of choice must be at least as significant as the old one. Though the amount of choice may not be increased by availability of the new opportunity, the significance of the choice problem is untouched since it depends upon the complexity of the deliberative process rather than the value of the specific opportunity now available for choice

20. Freedom of choice and autonomy From the analysis of the principle of ADINS it follows that freedom of choice must be connected with autonomy ADINS claims that every option counts to the deliberative process. Freedom of choice is then necessary for the exercise of an autonomous behaviour since if opportunities are not available, no deliberation could be undertaken This is not necessarily the case if choice has substantive value since freedom of choice could be realized even in the limit case where access is granted solely to the most preferred opportunity (Sen’s necessary condition)

21. Freedom of choice and autonomy In a liberal approach where we should not impose a priori values upon opportunities, the procedural reason for valuing choice maintains an undisputable appeal What really counts is that decision makers may access as many opportunities as possible – i.e., may enjoy the greatest freedom of choice – so as to preserve their chances to exercise autonomous behaviour Freedom of choice is also important to prevent institutions to act in such a way as to limit the significance of a person’s choice, say for paternalistic reasons Freedom of choice must then be a fundamental component of a measure of autonomy

22. Control, achievements and autonomy • The connection between potential preferences and choice triggers two psychological processes • It makes the person more committed to the choice she takes because it mirrors more closely the ways she wants to determine the course of her life • It makes the person readier to undertake a healthy process of outcome revision in the—unfortunate and yet possible—case in which she could not achieve what she prefers • If an agent considered with due care her potential preferences before making her choice, in the face of a failure, she will most likely be able to pin down her faults (e.g., lack of effort) and will also be ready to stick to her preferred course of action, were a new possibility for choice open to her

23. Control, achievements and autonomy Autonomous individuals enjoy commitment to the undertaken actions and readiness to go through a process of learning by doing A branch of cognitive functionalism, attribution theory (Weiner, Heckhausen, Meyer and Cook, 1972) shows that commitment and learning by doing (1) make the individuals `high achievers’ and (2) are related to the feeling of exercising control on one's achievements “1) Individuals high in achievement motivation … tend to ascribe success to themselves, and hence experience greater reward for goal attainment. 2) Individuals high in achievement motivation persist longer given failure than those low in this motivational tendency because they are more likely to ascribe the failure to a lack of effort, and less likely to attribute a failure to a deficiency in ability” (Weiner, Kukla, 1970)

24. Control, achievements and autonomy Attribution theory allows us to bridge the gap between autonomy freedom as interpreted in our theoretical framework with the achievement aspect of autonomy, stressed by question A173 with its reference to `control’ It does so by showing that there is evidence supporting the claim that autonomous agents are more likely to experience control over the outcomes in their lives and, hence, that high reported values in A173 correctly proxy high levels of individual autonomy We may then conclude that A173 in fact assesses the degree of autonomy freedom that the respondent enjoys

25. AF & control over outcomes Autonomy free individuals recognize that their choices make a difference since, through the process of preference formation, they exercise control over the outcomes of their decisions To support this view we empirically demonstrate that the extent of and individual’s autonomy freedom is strongly correlated with a measure of control included in the WVS database We show that individuals who enjoy greater freedom of choice and control are also those who believe that effort and hard work, rather than luck and privilege, determine success in life This implies that autonomy free individuals are also those whose choices matter as far as their life achievements are concerned

26. AF & control over outcomes: The data We use data from the WVS database which is designed to enable a cross-national, cross-cultural comparison of values and norms across the globe. This data collection contains the survey data from four waves : 1981-1984, 1990-1993, 1994-1997, and 1999-2004 The survey is performed on nationally representative samples of approximately 80 societies covering a large set of countries that encompass 85% of the world's population These societies span from those with per capita incomes below 300 dollars per year, to societies with per capita incomes of more than 35,000 dollars per year; from long-established democracies to authoritarian states; from societies with market economies to societies that are in the process of emerging from state-run economies

27. AF & control over outcomes: The data The empirical question: Does AF explains control over life outcomes? We need a variable to proxy the extent to which life outcomes are the results of individual decision-making rather than the outcome of choices that escape from the individuals' control We select from the WVS database the variable E40 - Hard work bring success How would you place your views on this scale? 1 means that you agree completely with the statement that, in the long run, hard work brings a better life. 10 means that you agree completely with the statement that, hard work does not generally bring success which is more a matter of luck and connections. If your views fall somewhere in between, you can choose any number in between

28. AF & control over outcomes: The data • Possible answers to question E040 show whether an individual is likely to be in control over the way his life turns out. Two cases emerge: • those who believe that effort and hard work bring a better living • are more likely to take control over their life if they desire to • succeed • those who consider luck and connections as determinants of • success in life, are more likely to display either fatalistic attitudes • about the way their life is expected to move ahead or lean on the • contributions of others to advance the prospects of their existence • While the former individuals seem to be in control of their lives, the latter are clearly not. This argument leads us to interpret the variable E40 - Hard work bring success, as a valid proxy for control

29. AF & control over outcomes: Methodology We estimate the following ordered logit model:

30. AF & control over outcomes: Results

31. Individuals with higher levels of AF are more likely to think that work, rather than luck and connections, brings better people's living Thus, AF is associated with greater control over life outcomes The probability of being in control increases for those who are male, young, married, living in small towns and employed Amongst the employed those self-employed have greater control

33. AF & control over outcomes: Table 3 The sample of individuals under investigation is split on the basis of socio-demographic characteristics No matter whether respondents are male of female, single or married, greater levels of AF lead people to believe that work and effort do pay in life, i.e., AF always significantly explains control over life outcomes Socio-demographic controls: the probability that the young have greater control of their lives is higher regardless the respondents’ gender, females only seem to be more in control if live in small towns, if employed and even more so if self-employed The probability of exercising greater control over life seems to increase when the individual is male, young and self-employed only for those who are married rather than single

34. The sample of individuals is divided according to their political orientation In spite of whether respondents are left-wing or right-wing politically oriented, the degree of AF always affects the level of control individuals hold over the course of their life The impact of socio-demographic controls does not present differences across the political orientation with the only exception of employment variables: While for left-leaning individuals being self-employed rises the probability for a person of being in control, for those who are right-leaning such a probability increases even if only employed

36. AF & control over outcomes: Table 3c The sample of individuals is divided on the basis of their religious creed Higher degrees of AF systematically increase the probability that people believe that effort and work, rather than luck and privilege, lead to a better living. Thus, regardless the religious affiliation of the respondents, AF always explains control over life outcomes Sex and age affect the probability of increasing the individual's control in spite of different religious beliefs. Both male and young individuals are more likely to think that effort and hard work contribute to deliver a better life Greater control over life outcomes seem to increase if the respondent live in a small town for Protestants only, if self-employed for Muslims and Orthodoxes and if simply employed for Catholics only

38. AF & control over outcomes: Table 3d The sample of individuals under scrutiny is divided along geographic lines according to the country where they live One more time, no matter whether the respondents reside in a OECD, transition or developing country, higher levels of an individual's AF are constantly associated with greater control over life outcomes Again, male and young individuals display stronger preferences for effort, rather than luck and connection, as determinants of success Persons who are single in OECD countries and self-employed in transition economies seem to be more likely to possess greater control over their lives

39. AF & control over outcomes: Summary The analysis carried out so far support our choice of the variable A173 - Freedom of choice and control as the empirical counterpart of the theoretical measure of AF We demonstrated that individuals who are free to choose and control their choices through a deliberation process in which they form their preferences, are also those who retain control over their life Our empirical measure of AF differs from other established measures of subjective well-being. We calculated the correlation between AF and the measures of happiness and self-satisfaction included in the WVS (- 0.24 and 0.40, respectively). Although statistically significant at the 1% level, they show that AF measures a different perception of well-being from that expressed by happiness and self-satisfaction and emphasize their distinct conceptual base

40. Who AF individuals are & what they think • We pointed out that the survey question A173 – Freedom of choice and control, is appropriate to construct an empirical measure of autonomy freedom • Our objective is twofold: • we offer some information about the distribution of AF in the set of countries considered in our analysis. This exercise helps us to capture some preliminary cross-country differences in the recorded levels of AF • we carry out some empirical estimations with the objective of • unveiling the socio-demographic characteristics of autonomous individuals as well as their thinking about politics, economics, religion and society

41. Who AF individuals are & what they think The average AF differ in the three sub-groups of countries: it reaches the highest level in OECD and the lowest in transition. The shape of the distribution differ greatly across the sub-samples of countries: In OECD and developing countries the distribution appears to be bi-modal, whereas in transition economies it seems to be almost normal

49. Af individuals: Methodology

50. Af individuals: Methodology The empirical results obtained do not allow us to establish any causal relationship between regressand and regressors, but rather conditional correlations Such correlations are interesting since, beside being statistically robust, they allow us to establish some important individual characteristics that help identifying the autonomy free individuals in general and across countries, political orientation and religious beliefs The traits of the autonomy free individuals that emerges from our empirical investigation ought to be considered as a snapshot taken in a specific moment in time. This implies that policy interventions supporting the development and exercise of autonomy freedom may change over time the identikit of the autonomous both within and across countries