Multiple Equilibria in the Welfare State

Alvaro Forteza ()

No 395, Documentos de Trabajo (working papers) from Department of Economics - dECON

Abstract: Excess distortions in the welfare state might be the consequence of the government's lack of ability to commit not to help "unlucky" agents. Incentive considerations that are crucial in standard insurance in the presence of moral hazard, plays no role in this case. As a consequence, the government might provide too much insurance. Still, equilibria with incomplete insurance and above-minimum effort might arise. Two possible reasons for multiple equilibria are explored in the paper, namely that marginal utility of consumption is positively associated with effort and that economic policy is costly. It is shown that the equilibria can be Pareto rankable. Borrowing analytical tools from recent developments in dynamic games (Matsui and Matsuyama, 1995), stability conditions of different equilibria are analyzed.

JEL-codes: D82 H30 (search for similar items in EconPapers)
Pages: 37 pages
Date: 1995-08
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hdl.handle.net/20.500.12008/2282 (application/pdf)

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:ude:wpaper:0395

Access Statistics for this paper

More papers in Documentos de Trabajo (working papers) from Department of Economics - dECON Contact information at EDIRC.
Bibliographic data for series maintained by Andrea Doneschi () and ().