Cohesion, Insurance and Redistribution

Federico Echenique and Jon Eguia

Quarterly Journal of Political Science, 2008, vol. 2, issue 4, 287-305

Abstract: 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)
Date: 2008
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1561/100.00006056 (application/xml)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

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 Lucy Wiseman ().