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Building Blocks in the Economics of Mandates

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Author Info

  • Addison, John T.

    ()
    (University of South Carolina)

  • Barrett, C. R.

    ()
    (University of Birmingham)

  • Siebert, W. Stanley

    ()
    (University of Birmingham)

Abstract

The paper constructs an asymmetric information model to investigate the efficiency and equity cases for government mandated benefits. A mandate can improve workers' insurance, and may also redistribute in favour of more "deserving" workers. The risk is that it may also reduce output. The more diverse are free market contracts – separating the various worker types – the more likely it is that such output effects will on balance serve to reduce welfare. It is shown that adverse effects can be reduced by restricting mandates to larger firms. An alternative to a mandate is direct government provision. We demonstrate that direct government provision has the advantage over mandates of preserving separations.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1866.

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Length: 33 pages
Date of creation: Nov 2005
Date of revision:
Publication status: published in: Portuguese Economic Journal, 2006, 5 (2), 69 - 87
Handle: RePEc:iza:izadps:dp1866

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Keywords: compensation packages; labour mandates; asymmetric information;

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References

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  1. Hellwig,Martin, 1986. "Some recent developments in the theory of competition in markets with adverse selection," Discussion Paper Serie A 82, University of Bonn, Germany.
  2. Dionne, Georges & Lasserre, Pierre, 1987. "Adverse selection and finite-horizon insurance contracts," European Economic Review, Elsevier, vol. 31(4), pages 843-861, June.
  3. Stewart, Jay, 1994. "The Welfare Implications of Moral Hazard and Adverse Selection in Competitive Insurance Markets," Economic Inquiry, Western Economic Association International, vol. 32(2), pages 193-208, April.
  4. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
  5. Krueger, Alan B., 2000. "From Bismarck to Maastricht: The March to European Union and the Labor Compact1," Labour Economics, Elsevier, vol. 7(2), pages 117-134, March.
  6. Aghion, Philippe & Hermalin, Benjamin, 1990. "Legal Restrictions on Private Contracts Can Enhance Efficiency," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(2), pages 381-409, Fall.
  7. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  8. Alan Krueger, 1999. "From Bismarck to Maastricht: The March to European Union and the Labor Compact," Working Papers 803, Princeton University, Department of Economics, Industrial Relations Section..
  9. Cooper, Russell & Hayes, Beth, 1987. "Multi-period insurance contracts," International Journal of Industrial Organization, Elsevier, vol. 5(2), pages 211-231.
  10. Levine, David I, 1991. "Just-Cause Employment Policies in the Presence of Worker Adverse Selection," Journal of Labor Economics, University of Chicago Press, vol. 9(3), pages 294-305, July.
  11. Christopher J. Ruhm, 1998. "The Economic Consequences Of Parental Leave Mandates: Lessons From Europe," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 285-317, February.
  12. Harsanyi,John C., 1986. "Rational Behaviour and Bargaining Equilibrium in Games and Social Situations," Cambridge Books, Cambridge University Press, number 9780521311830, October.
  13. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  14. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
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Cited by:
  1. Blandina Oliveira & Adelino Fortunato, 2008. "The dynamics of the growth of firms: evidence from the services sector," Empirica, Springer, vol. 35(3), pages 293-312, July.

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