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Transaction Costs and Overinsurance in Government Transfer Policy

Author

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  • Alvaro Forteza

    (Universidad de la República, Uruguay)

Abstract

Benevolent governments lacking commitment ability provide too much insurance, if opportunistic private agents free ride on the government´s concern and exert too little effort expecting government assistance. Yet, the costs of implementing the transfer policy work as a commitment device, alleviating the credibility problem. Indeed, despite of the lack of commitment capacity, the government might provide incomplete insurance because of these transaction costs. Therefore, transaction costs can increase welfare by resolving the dynamic inconsistency faced by a welfare maximizing policymaker.

Suggested Citation

  • Alvaro Forteza, 1999. "Transaction Costs and Overinsurance in Government Transfer Policy," Journal of Applied Economics, Universidad del CEMA, vol. 2, pages 311-335, November.
    • Handle: RePEc:cem:jaecon:v:2:y:1999:n:2:p:311-335
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    File URL: https://ucema.edu.ar/publicaciones/download/volume2/forteza.pdf
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    References listed on IDEAS

    as
    1. Bruce, Neil & Waldman, Michael, 1991. "Transfers in Kind: Why They Can Be Efficient and Nonpaternalistic," American Economic Review, American Economic Association, vol. 81(5), pages 1345-1351, December.
    2. Reinhart, Carmen & Vegh, Carlos, 1994. "Inflation stabilization in chronic inflation countries: The empirical evidence," MPRA Paper 13689, University Library of Munich, Germany.
    3. Barr, Nicholas, 1992. "Economic Theory and the Welfare State: A Survey and Interpretation," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 741-803, June.
    4. Coate, Stephen, 1995. "Altruism, the Samaritan's Dilemma, and Government Transfer Policy," American Economic Review, American Economic Association, vol. 85(1), pages 46-57, March.
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    More about this item

    Keywords

    Transfer policy; Transaction costs; Incomplete insurance.;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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