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Public and Private Welfare State Institutions: A Formal Theory of American Exceptionalism


  • Thomsson, Kaj

    () (Maastricht University)


I construct a model of public policy development, and use the model to explain why the United States has a comparatively small public sector, but instead a large "private welfare state" with employment-based benefits. The key factors are politically organized firms and labor unions. These interest groups can use campaign support to influence a political decision-maker who decides whether to implement a social benefit. In addition, the firms can influence the outcome indirectly by privately providing their own workers with the benefit. This setup leads to three possible outcomes. In the first, no one is provided the social benefit. In the second, all workers receive it through government provision. In the third, some workers receive the policy, through their employers. I argue that the features leading to the third equilibrium correspond closely to political institutions and industry characteristics of the US, while the features of the second equilibrium better describe European countries.

Suggested Citation

  • Thomsson, Kaj, 2010. "Public and Private Welfare State Institutions: A Formal Theory of American Exceptionalism," Working Paper Series 822, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0822

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    References listed on IDEAS

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    Cited by:

    1. Durevall, Dick & Henrekson, Magnus, 2011. "The futile quest for a grand explanation of long-run government expenditure," Journal of Public Economics, Elsevier, vol. 95(7), pages 708-722.

    More about this item


    Political Economy; Interest Groups; Institutions; Welfare States;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • N42 - Economic History - - Government, War, Law, International Relations, and Regulation - - - U.S.; Canada: 1913-
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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