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Government discretionary transfers and overinsurance

Author

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  • Álvaro Forteza

Abstract

Excess distortions in government transfer policies might result from the government lack of ability to commit not to help unlucky agents. Incentive considerations that are crucial in standard insurance in the presence of moral hazard play, no role in this case. A benevolent government that sets transfers after agents have chosen their effort faces a pure risk-sharing problem and provides full insurance, inducing too little effort. The lack of commitment ability might also cause indeterminacy: the economy might end in any of several equilibria, without the government being able to push it to a particular one.

Suggested Citation

  • Álvaro Forteza, 1999. "Government discretionary transfers and overinsurance," Estudios de Economia, University of Chile, Department of Economics, vol. 26(1 Year 19), pages 27-44, June.
    • Handle: RePEc:udc:esteco:v:26:y:1999:i:1:p:27-44
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    File URL: http://www.econ.uchile.cl/uploads/publicacion/6eef1527-2f5f-4298-aa80-f39ca07c35b2.pdf
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    Citations

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    Cited by:

    1. Bucheli, Marisa & Forteza, Alvaro & Rossi, Ianina, 2008. "Work history and the access to contributory pensions in Uruguay : some facts and policy options," Social Protection Discussion Papers and Notes 90345, The World Bank.
    2. Alvaro Forteza, 1999. "Política de clientelas y reformas de la Seguridad Social en América Latina," Documentos de Trabajo (working papers) 1899, Department of Economics - dECON.
    3. Alvaro Forteza & Cecilia Noboa, 2014. "Discretion Rather than Simple Rules: the Case of Social Protection," Documentos de Trabajo (working papers) 0814, Department of Economics - dECON.

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