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Diverse societal beliefs and redistributive policies, but equal welfare: The trade-off effect of information

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  • Gabrieli, T.

Abstract

Large empirical evidence shows that the difference in the political support for redistribution appears to reflect a difference in the social perceptions regarding the determinants of individual wealth and the underlying sources of income inequality. This paper presents a model of beliefs and redistribution which explains this evidence through multiple politico-economic equilibria. Differently from the recent literature which obtains multiple equilibria by modeling agents characterized by psychological biases, my model is based on standard assumptions. Multiple equilibria originate from multiple optimal levels of information for the society. Multiple optimal levels of information exist because increasing the informativeness of an economy produces a trade-off between a decrease in adverse selection and an increase in moral hazard. The framework allows to analyze various comparative statics in order to answer to policy questions.

Suggested Citation

  • Gabrieli, T., 2010. "Diverse societal beliefs and redistributive policies, but equal welfare: The trade-off effect of information," Working Papers 10/04, Department of Economics, City University London.
    • Handle: RePEc:cty:dpaper:10/04
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    References listed on IDEAS

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    Cited by:

    1. Tommaso Gabrieli, 2016. "Spatial Segregation, Redistribution and Welfare: A Theoretical Model," Urban Planning, Cogitatio Press, vol. 1(1), pages 68-78.

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