Optimal Management of Transfers: an Odd Paradox
In this paper we consider transfers towards needy people but, unlike Atkinson, we assume that there exists a serious preference misalignment between the transfer maker and the beneficiary. The former wants to reduce the resulting discrepancy through monitoring the use of the transfer and imposing sanctions if the discrepancy proves too large. This external discipline combines with the internal discipline of the beneficiary, that is his/her willingness and ability to align with the transfer maker's objective. Besides the fact that costs of monitoring and sanctioning are explicitly taken into account, an original feature of our model is that the two types of discipline are made comparable: they can be summed up to obtain an aggregate discipline. We show that, paradoxically, an (exogenous) improvement of internal discipline may be over-compensated by a fall of external discipline. As a result, total discipline actually decreases and the discrepancy between the actual and the intended uses of the transfer increases instead of decreasing. This paradoxical outcome is obtained despite better preference alignment as cost savings are optimally implemented. Another consequence is that the relationship between internal and total disciplines may be non-monotonous.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Aug 2017|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:12234. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.