Cohesion, Insurance and Redistribution
Federico Echenique () and
Quarterly Journal of Political Science, 2008, vol. 2, issue 4, 287-305
Governments use redistributive policies to favor relatively unproductive economic sectors. Traditional economic wisdom teaches that the government should instead buy out the agents in these sectors, and let them relocate to more productive sectors. We showthat redistribution to a sector whose agents have highly correlated incomes generates an insurance value. Taking this insurance value into account, a buy-out is not sufficient to compensate the agents in the sector for relocating. In fact, it may be efficient for the government to sustain agents in an activity that, while less productive, is subject to correlated income shocks. US data suggests that indeed, sectors that receive transfers are subject to more correlated income shocks than others.
Keywords: Redistribution; Insurance; Cohesion (search for similar items in EconPapers)
JEL-codes: D61 D72 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:now:jlqjps:100.00006056
Access Statistics for this article
More articles in Quarterly Journal of Political Science from now publishers
Bibliographic data for series maintained by Alet Heezemans ().