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Welfare state in the 21st century

The Welfare State is at the core of the Scandinavian societal model. As we move further into the 21st century, how should we adjust our understanding and implementation of the Welfare State? Microeconomic research has a lot to contribute on the question.

  • Inequality and Fairness: an important (if not the most important) goal of the welfare state is to achieve some form of fairness in society and promote equality. But what is a fair society and how does it relate to inequality? Inspired by the work of political philosophers, microeconomists try to formalize the very concept of fairness so as to clarify its implications and understand what objective we should try to maximize as a society. Assuming we agree on a specific ideal of justice and equality, the critical question then becomes how to implement that ideal through public policies and income redistribution.
  • Discrimination and Equality of Opportunities: recent evidence shows that even in Denmark, women and minorities still suffer from discrimination and do not benefit from the same opportunities as the rest of the population. Fighting against these forms of discrimination and providing equality of opportunities (in education, housing, on the job market) should be a central objective of the Welfare State. But how to achieve such goals in the most efficient manner? Should the government enforce quotas or instead provide other types of economic incentives? How to measure discrimination/inequality of opportunity and compare it to other forms of inequality? These are all questions that microeconomics can address.
  • Incentives and the darker side of the Welfare State: reducing inequality and promoting fairness are very desirable objectives but may also come at a cost in terms of efficiency since individuals may lack motivation. How to fulfill such normative objectives while still providing enough incentives for individuals to work, educate, be good citizens, etc? How to measure the effect of egalitarian policies on the provision of incentives and the behavior of individuals? A critical assessment of the welfare state must also account for this darker side of welfare policies.
  • Centralized allocation of resources: when markets fail, the state may decide to substitute itself to the market and organize the centralized allocation of resources so as to achieve a greater outcome. Prominent examples of centralized allocation schemes are found in housing (public housing), health (doctors to hospitals, organ exchange, etc), education (students to universities, teachers to schools), etc. The choice of the algorithm used to allocate the goods is of critical importance for the efficiency and fairness of the resulting outcome. For now more than 30 years, microeconomists have been working on these questions and helping governments and public authorities implementing some of their novel solutions.
  • Collective decisions and Liquid Democracy: the Welfare State has always been focused on providing greater equality of resources (income, opportunities, etc). We believe it should also strive to provide a more direct, equal and transparent access to influence society’s collective decisions. Liquid democracy, which offers a compromise between representative and direct democracy by allowing citizens to either vote themselves or delegate their vote on any political issue, could contribute to that objective.  Its implementation requires secure online voting, which is now becoming available on a large scale, and has already been experimented in various settings.

If you are interest in knowing more about our research in this field, contact Associate Professor Rafael Treibich.