Renegotiation of Social Contracts by Majority Rule

Dan Anderberg and Carlo Perroni

No 00-15, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: We consider renegotiation of social earnings insurance arrangements by majority voting in an economy where ex-ante identical individuals make unobservable private investments in education. We show that voting-based renegotiation can result in a higher expected level of investment in comparison to the case where social insurance is determined by an appointed social planner. We also find that, with voting-based renegotiation, the availability of costly ex-post information about private investment can help overcome commitment problems. These findings call into question the practice of using a representative-consumer approach when modelling dynamic policy problems in large economies.

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Related works:
Working Paper: Renegotiation of Social Contracts by Majority Rule (2000)
Working Paper: Renegotiation of Social Contracts by Majority Rule (2000)
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