On the Political Economy of the Welfare State
There is a widespread feeling that welfare states are distorting incentives to a larger extent than what is socially optimal. In the present paper, this idea is formally analyzed with a model in which a benevolent government seeks to maximize the utility of risk-averse-opportunistic agents. The government can redistribute output from the "lucky" to the "unlucky", providing insurance. Under commitment, the government optimizes before agents choose the level of effort. Aware of incentive problems, the government will typically provide incomplete insurance, in order to induce some effort above the minimum. Under discretion, the government reoptimizes after agents chose effort. Thus, it faces a pure risk-sharing problem and provides full insurance. Agents anticipate government's actions so they choose the minimum effort. Social welfare might be lower under discretion: there would be overinsurance.
|Date of creation:||Jul 1994|
|Date of revision:|
|Contact details of provider:|| Postal: Constituyente 1502, 6to piso, CP 11200, Montevideo|
Phone: (598) 2410-6449
Fax: (598) 2410-6450
Web page: http://cienciassociales.edu.uy/departamentodeeconomia/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kokko, Ari & Tansini, Ruben & Zejan, Mario, 1994.
"Productivity Spillovers from FDI in the Uruguayan Manufacturing Sector,"
SSE/EFI Working Paper Series in Economics and Finance
2, Stockholm School of Economics.
- Ari Kokko & Ruben Tansini & Mario Zejan, 1994. "Productivity spillovers from FDI in the Uruguayan manufacturing sector," Documentos de Trabajo (working papers) 0194, Department of Economics - dECON.
- Rosario Domingo & Héctor Pastori & Tabaré Vera, 1994. "Comportamiento estratégico de las empresas industriales frente a la apertura," Documentos de Trabajo (working papers) 0494, Department of Economics - dECON.
- María Inés Terra & Marcel Vaillant, 1994. "Cambios en el patrón de especialización regional. Viejas ventajas comparativas y nuevas economías de escala," Documentos de Trabajo (working papers) 0894, Department of Economics - dECON.
- María Inés Terra & Adriana Gigliotti, 1994. "Mercosur: localización de la producción. Un modelo de geografía económica," Documentos de Trabajo (working papers) 0794, Department of Economics - dECON.
When requesting a correction, please mention this item's handle: RePEc:ude:wpaper:0594. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Andrea Doneschi)or (Héctor Pastori)
If references are entirely missing, you can add them using this form.