Charles Delmotte (Michigan State) and Malte Dold (Barnard) have posted “Poverty, State-Dependent Risk Preferences, and the Case for Mutual-Advantage Redistribution” to SSRN (and also forthcoming in Behavioural Public Policy). Here is the abstract:

This article makes a twofold contribution. First, we address a gap in welfare economic discussions about poverty and redistribution. Existing accounts trace poverty’s negative externalities to constrained choice sets or impaired cognition, but none models how poverty shifts risk preferences to produce these externalities. We argue that standard rational choice models, which assume stable risk preferences, cannot fully explain why individuals in disadvantaged conditions engage in risky, long-shot behaviors. Drawing on prospect theory and risk-sensitivity theory, we introduce the “need-based risk mechanism”: when an individual’s resources fall below the desperation threshold, risk preferences shift toward risk-seeking. Second, we connect this behavioral model with a justification for redistribution. We identify a type of redistribution that generates mutual advantages, where transfers yield return benefits to net donors. By keeping individuals above their desperation threshold, redistribution deactivates the mechanism and reduces the resulting crime and social instability. Because risk-seeking is triggered at a threshold rather than by relative disadvantage, the framework supports a sufficientarian target for transfers. We argue that this framework of “mutual-advantage redistribution” provides a stronger, consent-friendly justification for redistribution than conventional welfare economic approaches built on utilitarian logic or philosophical approaches grounded in egalitarian justice.