Beliefs and Redistributive Politics under Incomplete Information
AbstractThe reason why the social contract is so different in two otherwise comparable societies like the United States and continental Western European countries represents a challenging question. 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. I present a model of beliefs and redistribution which explains this evidence through multiple politico-economic equilibria. Differently fromthe recent literaturewhich obtains multiple equilibria by modeling agents characterized by psychological biases, my model is based on standard assumptions. Multiple equilibria originate frommultiple 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 the analysis of various comparative statics in order to answer to policy questions.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 821.
Length: 36 pages
Date of creation: 2007
Date of revision:
Politico-Economic Equilibria ; Redistribution ; Incomplete Information;
Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-17 (All new papers)
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