Governmental Transfers Can Reduce a Moral Hazard Problem
AbstractAn altruistic agent who may aid a person with a low income may cause that person to exert little effort to increase his income. Such behavior generates a Dilemma, in which welfare is lower than when no one is altruistic. We show how governmental transfers, which do not allow for reallocation from a person who saves much to one who saves little, reduces the effect, and can lead to an outcome which is Pareto-superior to the outcome under a Nash equilibrium with no government taxation and transfers.
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Bibliographic InfoPaper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 101102.
Length: 25 pages
Date of creation: Oct 2010
Date of revision:
Social security; Moral hazard; Savings; Altruism;
Find related papers by JEL classification:
- D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
- D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
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