Mandated benefits, welfare, and heterogeneous firms
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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- Christopher J. Ruhm, 1998.
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The Quarterly Journal of Economics,
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Journal of Law, Economics and Organization,
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- 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..
- Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
- 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.
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