 Social Credibility, Social Patience and Long Run InequalityChristopher Sleet and Sevin Yeltekin () No 2006-E36, GSIA Working Papers from Carnegie Mellon University, Tepper School of Business Abstract: This paper considers optimal social insurance in a dynamic moral hazard economy. The existing literature has focussed on environments in which a planner and a population of agents share the same discount factor. A key finding is that agents are then almost surely immiserated; their welfare is driven to its lowest bound. Such immiseration requires a social commitment to treat (almost) everyone arbitrarily badly in the long run. We argue that this is implausible. We establish an equivalence between optimal allocations in two environments: those in which the planner lacks commitment and is constrained to choose socially credible policies and those in which the planner’s discount factor exceeds the agents’. We show that immiseration result no longer holds in the second environment. Optimal allocations in this environment are characterised by social mobility and a degree of inequality that it is falling in the planner’s discount factor. The credibility constrained economy inherits the no immiseration and social mobility properties. 1 References: Add references at CitEc Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cmu:gsiawp:722839510 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in GSIA Working Papers from Carnegie Mellon University, Tepper School of Business Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890. |
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