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Governmental Transfers Can Reduce a Moral Hazard Problem

Author

Listed:
  • Amihai Glazer

    (Department of Economics, University of California-Irvine)

  • Hiroki Kondo

    (Department of Economics, Sophia University)

Abstract

An altruistic agent who may aid a person with a low income may cause that person to exert little effort to increase his income. Such behavior generates a Dilemma, in which welfare is lower than when no one is altruistic. We show how governmental transfers, which do not allow for reallocation from a person who saves much to one who saves little, reduces the effect, and can lead to an outcome which is Pareto-superior to the outcome under a Nash equilibrium with no government taxation and transfers.

Suggested Citation

  • Amihai Glazer & Hiroki Kondo, 2010. "Governmental Transfers Can Reduce a Moral Hazard Problem," Working Papers 101102, University of California-Irvine, Department of Economics.
  • Handle: RePEc:irv:wpaper:101102
    as

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    File URL: https://www.economics.uci.edu/files/docs/workingpapers/2010-11/glazer-2.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Social security; Moral hazard; Savings; Altruism;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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