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Renegotiation of Social Contracts by Majority Rule

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  • Dan Anderberg
  • Carlo Perroni

Abstract

We consider renegotiation of social earnings insurance arrangements by majority voting in an economy where ex-ante identical individuals make unobservable private investments in education. We show that voting-based renegotiation can result in a higher expected level of investment in comparison to the case where social insurance is determined by an appointed social planner. We also find that, with voting-based renegotiation, the availability of costly ex-post information about private investment can help overcome commitment problems. These findings call into question the practice of using a representative-consumer approach when modelling dynamic policy problems in large economies.

Suggested Citation

  • Dan Anderberg & Carlo Perroni, "undated". "Renegotiation of Social Contracts by Majority Rule," EPRU Working Paper Series 00-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:00-15
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    References listed on IDEAS

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    1. Robin Boadway & Nicolas Marceau & Maurice Marchand, 1992. "Investment in Education and the Time Inconsistency of Redistributive Tax Policy," Working Paper 860, Economics Department, Queen's University.
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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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