A Note On Optimal Insurance in an Information Constrained Federal Economy with Incomplete Degree of Enforceability and Negotiation Costs
AbstractThis paper studies the constrained efficient intergovernmental transfer contract between the central government and the states in a federal economy. We consider an environment with moral hazard, incomplete enforceability and date 0 negotiation costs. The interaction of moral hazard and incomplete enforceability may imply that when the state’s resources are ”low enough”, it is constrained efficient that the state gets a lower utility level than in autarky. When negotiation costs are considered, the state might not accept the contract. More importantly, the possibility of whether accepting or not is not monotonically determined by the state’s fiscal situation.
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Bibliographic InfoPaper provided by Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata in its series Department of Economics, Working Papers with number 018.
Length: 32 pages
Date of creation: Nov 1999
Date of revision:
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