Renegotiation of Social Contracts by Majority Rule
AbstractWe consider renegotiation of social earnings insurance arrangements by majority voting in an economy where ex-ante identical individuals make unobservable private investments in education. We show that voting-based renegotiation can result in a higher expected level of investment in comparison to the case where social insurance is determined by an appointed social planner. We also find that, with voting-based renegotiation, the availability of costly ex-post information about private investment can help overcome commitment problems. These findings call into question the practice of using a representative-consumer approach when modelling dynamic policy problems in large economies.
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- Anderberg, D. & Perroni, C., 2000. "Renegotiation of Social Contracts by Majority Rule," The Warwick Economics Research Paper Series (TWERPS) 566, University of Warwick, Department of Economics.
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
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