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Beliefs and Redistributive Politics under Incomplete Information

Tommaso Gabrieli ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: The reason why the social contract is so different in two otherwise comparable societies like the United States and continental Western European countries represents a challenging question. Large empirical evidence shows that the difference in the political support for redistribution appears to reflect a difference in the social perceptions regarding the determinants of individual wealth and the underlying sources of income inequality. I present a model of beliefs and redistribution which explains this evidence through multiple politico-economic equilibria. Differently fromthe recent literaturewhich obtains multiple equilibria by modeling agents characterized by psychological biases, my model is based on standard assumptions. Multiple equilibria originate frommultiple optimal levels of information for the society. Multiple optimal levels of information exist because increasing the informativeness of an economy produces a trade-off between a decrease in adverse selection and an increase in moral hazard. The framework allows the analysis of various comparative statics in order to answer to policy questions.

Keywords: Politico-Economic Equilibria; Redistribution; Incomplete Information (search for similar items in EconPapers)
JEL-codes: D31 D72 D80 E62 H30 O40 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2007
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Working Paper: BELIEFS AND REDISTRIBUTIVE POLITICS UNDER INCOMPLETE INFORMATION (2007) Downloads
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