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The Supply of Social Insurance


  • Gonzalez, M.
  • Wen, W.


We propose a theory of the welfare state, in which social transfers are chosen by a governing group interacting with non-governing groups repeatedly. Social demands from the non-governing groups are credible because these groups have the ability to generate social conflict. In this context social insurance is supplied as an equilibrium response to income risks within a self-enforcing social contract. When we explore the implications of such a view of the social contract, we find four main determinants of the welfare state: the degree of aggregate income risk; the heterogeneity of group-specific income risks; the public administration’s ability to implement group-specific transfers; and the ability of the nongoverning groups to coordinate their social demands. We also analyze the link between public good provision and social insurance.

Suggested Citation

  • Gonzalez, M. & Wen, W., 2007. "The Supply of Social Insurance," Cambridge Working Papers in Economics 0772, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0772

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