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

  • Avner Offer

    ()

    (All Souls College, University of Oxford)

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.

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File URL: http://www.economics.ox.ac.uk/materials/papers/12255/offer103.pdf
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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Oxford University Economic and Social History Series with number _103.

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Length: 41 pages
Date of creation: 15 Aug 2012
Date of revision:
Handle: RePEc:nuf:esohwp:_103
Contact details of provider: Web page: http://www.nuff.ox.ac.uk/economics/

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