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Mandated benefits, welfare, and heterogeneous firms

  • Addison, John T.
  • Barrett, Charles Richard
  • Siebert, William Stanley

The paper constructs an asymmetric information model to investigate the efficiency and equity cases for government mandated benefits. A mandate can improve workers? insurance, and may also redistribute in favor of more "deserving" workers. The risk is that it may also reduce output. The more diverse are free market contracts - separating the various worker types - the more likely it is that such output effects will on balance serve to reduce welfare. It is shown that adverse effects can be mitigated by restricting mandates to "large" firms. An alternative to a mandate is direct government provision. We demonstrate that direct government provision may be superior to mandates by virtue of preserving separations.

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File URL: http://econstor.eu/bitstream/10419/24288/1/dp4698.pdf
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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 98-46.

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Date of creation: 1998
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Handle: RePEc:zbw:zewdip:5216
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  1. Stewart, Jay, 1994. "The Welfare Implications of Moral Hazard and Adverse Selection in Competitive Insurance Markets," Economic Inquiry, Western Economic Association International, vol. 32(2), pages 193-208, April.
  2. Alan Krueger, 1994. "Observations on Employment-Based Government Mandates, With Particular Reference to Health Insurance," Working Papers 702, Princeton University, Department of Economics, Industrial Relations Section..
  3. Christopher J. Ruhm, 1996. "The Economic Consequences of Parental Leave Mandates: Lessons from Europe," NBER Working Papers 5688, National Bureau of Economic Research, Inc.
  4. Aghion, Philippe & Hermalin, Benjamin, 1990. "Legal Restrictions on Private Contracts Can Enhance Efficiency," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(2), pages 381-409, Fall.
  5. Levine, David I, 1991. "Just-Cause Employment Policies in the Presence of Worker Adverse Selection," Journal of Labor Economics, University of Chicago Press, vol. 9(3), pages 294-305, July.
  6. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
  7. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
  8. Hellwig,Martin, 1986. "Some recent developments in the theory of competition in markets with adverse selection," Discussion Paper Serie A 82, University of Bonn, Germany.
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