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Renegotiation of Social Contracts by Majority Rule

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  • Anderberg, Dan
  • Perroni, Carlo

Abstract

We consider renegotiation of social earnings insurance arrangements by majority voting in an economy where ex-ante identical individuals make unobservable private investments in education. We show that voting-based renegotiation can result in a higher expected level of investment in comparison to the case where social insurance is determined by an appointed social planner. We also ¯nd that, with voting-based renegotiation, the availability of costly ex-post information about private investment can help overcome commitment problems. These findings call into question the practice of using a representative-consumer approach when modelling dynamic policy problems in large economies.

Suggested Citation

  • Anderberg, Dan & Perroni, Carlo, 2000. "Renegotiation of Social Contracts by Majority Rule," Economic Research Papers 269337, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:269337
    DOI: 10.22004/ag.econ.269337
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    More about this item

    Keywords

    Agricultural and Food Policy; Teaching/Communication/Extension/Profession;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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