Luck, Justice and Systemic Financial Risk

Journal of Applied Philosophy 34(3) (2017): 331-352

22 Pages Posted: 22 Jul 2015 Last revised: 5 Jun 2017

See all articles by John Linarelli

John Linarelli

University of Pittsburgh - School of Law

Date Written: July 1, 2015

Abstract

Systemic financial risk is one of the most significant collective action problems facing societies. The Great Recession brought attention to a tragedy of the commons in capital markets, in which market participants, from first-time homebuyers to Wall Street financiers, acted in ways beneficial to themselves individually, but which together caused substantial collective harm. Two kinds of risk are at play in complex chains of transactions in financial markets: ordinary market risk and systemic risk. Two moral questions are relevant in such cases. First, from the standpoint of interactional morality, does a person have a moral duty to avoid risk of harm to others if their financial transactions contribute in some way, however small, to the loss or harm? This paper identifies the conditions in which persons are morally responsible in such cases. Second, from the standpoint of institutional morality, how should society distribute the risk of harm associated with massively complex financial markets? This question is considered in the context of the home mortgage credit market. Luck egalitarianism, in particular a Dworkinian insurance scheme to allocate risks and resources relating to mortgage credit and private home ownership, offers substantial promise.

Keywords: luck egalitarianism, moral responsibility, systemic risk, global economic crisis

Suggested Citation

Linarelli, John, Luck, Justice and Systemic Financial Risk (July 1, 2015). Journal of Applied Philosophy 34(3) (2017): 331-352, Available at SSRN: https://ssrn.com/abstract=2633971

John Linarelli (Contact Author)

University of Pittsburgh - School of Law ( email )

3900 Forbes Ave.
Pittsburgh, PA 15260
United States

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