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The Economy of Obligation: Incomplete Contracts and the Cost of the Welfare State

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  • Avner Offer

    () (All Souls College, University of Oxford)

Abstract

Western governments typically pay out some 30 percent of GDP for social purposes. This is financed by taxation on a pay-as-you-go (PAYGO) basis. How efficient are these transfers, and can market or other mechanisms do it better? The problem arises since no individual stands alone. During the life cycle there are several periods of unavoidable dependency, in which there is no earning and little to bargain with: motherhood, infancy, childhood, education, illness, disability, unemployment, old age. The problem is how to transfer resources from ‘producers’ to ‘dependants’ over the life cycle. The market solution is for individuals to accumulate financial assets and to transfer them over the life cycle by means of long-term contracts with financial intermediaries.

Suggested Citation

  • Avner Offer, 2012. "The Economy of Obligation: Incomplete Contracts and the Cost of the Welfare State," Oxford University Economic and Social History Series _103, Economics Group, Nuffield College, University of Oxford.
  • Handle: RePEc:nuf:esohwp:_103
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    Cited by:

    1. Avner Offer, 2013. "Narrow banking, real estate, and financial stability in the UK, c.1870-2010," Oxford University Economic and Social History Series _116, Economics Group, Nuffield College, University of Oxford.
    2. Aled Davies, 2012. "The Evolution of British Monetarism: 1968-1979," Economics Series Working Papers Number 104, University of Oxford, Department of Economics.

    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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