Transaction Costs and Overinsurance in Government Transfer Policy

Alvaro Forteza ()

Journal of Applied Economics, 1999, vol. 2, 311-335

Abstract: Benevolent governments lacking commitment ability provide too much insurance, if opportunistic private agents free ride on the government´s concern and exert too little effort expecting government assistance. Yet, the costs of implementing the transfer policy work as a commitment device, alleviating the credibility problem. Indeed, despite of the lack of commitment capacity, the government might provide incomplete insurance because of these transaction costs. Therefore, transaction costs can increase welfare by resolving the dynamic inconsistency faced by a welfare maximizing policymaker.

Keywords: Transfer policy; Transaction costs; Incomplete insurance. (search for similar items in EconPapers)
JEL-codes: D60 D82 H10 H30 I30 P16 (search for similar items in EconPapers)
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:cem:jaecon:v:2:y:1999:n:2:p:311-335

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