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Informal family insurance and the design of the welfare state

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  • DiTella, Rafael
  • MacCulloch, Robert

Abstract

We study the problem of unemployment benefit provision when the family is also a provider of social insurance. As a benchmark, a simple model is presented where risksharing motives govern intra-family transfers and more generous unemployment benefits, provided by the State, crowd out family risk-sharing arrangements one-forone. The model is then extended to capture the idea that the State has an advantage vis-a-vis the family in the provision of insurance because it can tax individuals, whereas the family must rely on self-enforcing agreements. In this case, the effect of State transfers on intra-family transfers is found to be more than one-for-one. Thus, somewhat perversely, both informal transfers and total insurance transfers to the unemployed fall as the State's generosity increases. This does not imply that the optimal Welfare State is zero. Our results still hold when families are assumed to be better than the State at monitoring the job search activities of the unemployed. --

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Bibliographic Info

Paper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 23-1999.

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Date of creation: 1999
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Handle: RePEc:zbw:zeiwps:b231999

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Keywords: Self-enforcing contracts; Optimal welfare generosity;

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Citations

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Cited by:
  1. James Malcomson, 2010. "Relational Incentive Contracts," Economics Series Working Papers 508, University of Oxford, Department of Economics.
  2. Bentolila, Samuel & Ichino, Andrea, 2000. "Unemployment and Consumption: Are Job Losses Less Painful near the Mediterranean?," CEPR Discussion Papers 2539, C.E.P.R. Discussion Papers.
  3. Robert MacCulloch, 2001. "Does Social Insurance Help Secure Property Rights?," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 31, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  4. Krueger, Dirk & Perri, Fabrizio, 2010. "Public versus Private Risk Sharing," CEPR Discussion Papers 7625, C.E.P.R. Discussion Papers.
  5. Carmen Aina & Fernanda Mazzotta & Lavinia Parisi, 2010. "Gender Differences in Money Transfers within the Family. Evidence from Italy," Working Papers 133, SEMEQ Department - Faculty of Economics - University of Eastern Piedmont.
  6. Carmen Aina & Fernanda Mazzotta & Lavinia Parisi, 2010. "Do Flexible Employment Contracts Change Household Income Differences in Italy?," Working Papers 129, SEMEQ Department - Faculty of Economics - University of Eastern Piedmont.
  7. Jonathan P Thomas & Tim Worrall, 2002. "Unemployment Insurance under Moral Hazard and Limited Commitment: Public vs Private Provision," Keele Economics Research Papers KERP 2002/20, Centre for Economic Research, Keele University.
  8. Prendergast, Canice & Stole, Lars, 1999. "Restricting the means of exchange within organizations," European Economic Review, Elsevier, vol. 43(4-6), pages 1007-1019, April.
  9. Stefan Hochguertel & Henry Ohlsson, 2000. "Compensatory inter vivos gifts," Economics Working Paper Archive wp_319, Levy Economics Institute.
  10. Heemskerk, Marieke & Norton, Anastasia & de Dehn, Lise, 2004. "Does Public Welfare Crowd Out Informal Safety Nets? Ethnographic Evidence from Rural Latin America," World Development, Elsevier, vol. 32(6), pages 941-955, June.
  11. Tammi, Timo, 2013. "Dictator game giving and norms of redistribution: Does giving in the dictator game parallel with the supporting of income redistribution in the field?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 43(C), pages 44-48.
  12. Lucifora, Claudio & Meurs, Dominique, 2012. "Family Values, Social Needs and Preferences for Welfare," IZA Discussion Papers 6977, Institute for the Study of Labor (IZA).
  13. Henderson, J. Vernon & Kuncoro, Ari, 2011. "Corruption and local democratization in Indonesia: The role of Islamic parties," Journal of Development Economics, Elsevier, vol. 94(2), pages 164-180, March.

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