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The Welfare State as a Fiscal Commons: Problems of Incentives Versus Problems of Cognition

Author

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  • Keith Jakee

    (RMIT University, Melbourne, Australia)

  • Stephen Turner

    (Stockholm University)

Abstract

A mounting empirical literature clearly indicates that the core programs of the welfare state are unsustainable in their present form. The proximate cause of this growing fiscal instability is a demographic imbalance between younger contributors and older beneficiaries. The authors argue, however, that the ultimate cause is the institutional structure of the welfare state itself. Specifically, if its fiscal institutions are modeled as a common-pool resource, the tools and analysis emerging from the growing literature on common pools can be used. Such an analysis suggests that the apparent nonsustainability of current welfare state programs is rooted in the failure to resolve two distinct problems in institutional design. The first problem concerns how to limit the scope of opportunism among rational self-interested individuals. The second problem concerns how to limit the adverse effects of the knowledge problem among boundedly rational individual actors.

Suggested Citation

  • Keith Jakee & Stephen Turner, 2002. "The Welfare State as a Fiscal Commons: Problems of Incentives Versus Problems of Cognition," Public Finance Review, , vol. 30(6), pages 481-508, November.
    • Handle: RePEc:sae:pubfin:v:30:y:2002:i:6:p:481-508
    DOI: 10.1177/109114202237999
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    References listed on IDEAS

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    Cited by:

    1. Jody W. Lipford & Bruce Yandle, 2014. "Grazing the State and Local Fiscal Commons," Public Finance Review, , vol. 42(4), pages 466-486, July.
    2. Richard E. Wagner, 2012. "Deficits, Debt, and Democracy," Books, Edward Elgar Publishing, number 14477.
    3. Trent J. MacDonald, 2019. "The Political Economy of Non-Territorial Exit," Books, Edward Elgar Publishing, number 18871.
    4. ., 2019. "Economic theory of non-territorial unbundling," Chapters, in: The Political Economy of Non-Territorial Exit, chapter 1, pages 14-38, Edward Elgar Publishing.
    5. Ringa Raudla, 2010. "Governing budgetary commons: what can we learn from Elinor Ostrom?," European Journal of Law and Economics, Springer, vol. 30(3), pages 201-221, December.
    6. Jody W. Lipford, 2022. "The Distribution of Transfers and Taxes: Incentives and Implications for the US Deficit and Debt," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 37(Winter 20), pages 1-20.

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