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Informal family insurance and the design of the welfare state

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  • DiTella, Rafael
  • MacCulloch, Robert

Abstract

We study the problem of unemployment benefit provision when the family is also a provider of social insurance. As a benchmark, a simple model is presented where risksharing motives govern intra-family transfers and more generous unemployment benefits, provided by the State, crowd out family risk-sharing arrangements one-forone. The model is then extended to capture the idea that the State has an advantage vis-a-vis the family in the provision of insurance because it can tax individuals, whereas the family must rely on self-enforcing agreements. In this case, the effect of State transfers on intra-family transfers is found to be more than one-for-one. Thus, somewhat perversely, both informal transfers and total insurance transfers to the unemployed fall as the State's generosity increases. This does not imply that the optimal Welfare State is zero. Our results still hold when families are assumed to be better than the State at monitoring the job search activities of the unemployed.

Suggested Citation

  • DiTella, Rafael & MacCulloch, Robert, 1999. "Informal family insurance and the design of the welfare state," ZEI Working Papers B 23-1999, University of Bonn, ZEI - Center for European Integration Studies.
  • Handle: RePEc:zbw:zeiwps:b231999
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    Cited by:

    1. Jonathan P. Thomas & Tim Worrall, 2007. "Unemployment Insurance under Moral Hazard and Limited Commitment: Public versus Private Provision," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(1), pages 151-181, February.
    2. Tammi, Timo, 2013. "Dictator game giving and norms of redistribution: Does giving in the dictator game parallel with the supporting of income redistribution in the field?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 43(C), pages 44-48.
    3. Stefan Hochguertel & Henry Ohlsson, 2009. "Compensatory inter vivos gifts," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 993-1023.
    4. Samuel Bentolila & Andrea Ichino, 2000. "Unemployment and Consumption: Are Job Losses Less Painful near the Mediterranean?," CESifo Working Paper Series 372, CESifo Group Munich.
    5. Krueger, Dirk & Perri, Fabrizio, 2011. "Public versus private risk sharing," Journal of Economic Theory, Elsevier, vol. 146(3), pages 920-956, May.
    6. Henderson, J. Vernon & Kuncoro, Ari, 2011. "Corruption and local democratization in Indonesia: The role of Islamic parties," Journal of Development Economics, Elsevier, vol. 94(2), pages 164-180, March.
    7. Heemskerk, Marieke & Norton, Anastasia & de Dehn, Lise, 2004. "Does Public Welfare Crowd Out Informal Safety Nets? Ethnographic Evidence from Rural Latin America," World Development, Elsevier, vol. 32(6), pages 941-955, June.
    8. Carmen Aina & Fernanda Mazzotta & Lavinia Parisi, 2010. "Gender Differences in Money Transfers within the Family. Evidence from Italy," Working Papers 133, SEMEQ Department - Faculty of Economics - University of Eastern Piedmont.
    9. Robert MacCulloch, 2001. "Does Social Insurance Help Secure Property Rights?," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 31, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    10. James M. Malcomson, 2012. "Relational Incentive Contracts," Introductory Chapters,in: Robert Gibbons & John Roberts (ed.), The Handbook of Organizational Economics Princeton University Press.
    11. Lin, Wanchuan & Liu, Yiming & Meng, Juanjuan, 2014. "The crowding-out effect of formal insurance on informal risk sharing: An experimental study," Games and Economic Behavior, Elsevier, vol. 86(C), pages 184-211.
    12. Lucifora, Claudio & Meurs, Dominique, 2012. "Family Values, Social Needs and Preferences for Welfare," IZA Discussion Papers 6977, Institute for the Study of Labor (IZA).
    13. Jonathan P Thomas & Tim Worrall, 2002. "Unemployment Insurance under Moral Hazard and Limited Commitment: Public vs Private Provision," Public Economics 0211002, EconWPA.
    14. Carmen Aina & Fernanda Mazzotta & Lavinia Parisi, 2010. "Do Flexible Employment Contracts Change Household Income Differences in Italy?," Working Papers 129, SEMEQ Department - Faculty of Economics - University of Eastern Piedmont.
    15. Prendergast, Canice & Stole, Lars, 1999. "Restricting the means of exchange within organizations," European Economic Review, Elsevier, vol. 43(4-6), pages 1007-1019, April.

    More about this item

    Keywords

    Self-enforcing contracts; Optimal welfare generosity;

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • D1 - Microeconomics - - Household Behavior
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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