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A Note On Optimal Insurance in an Information Constrained Federal Economy with Incomplete Degree of Enforceability and Negotiation Costs Abstract: This paper studies the constrained efficient intergovernmental transfer contract between the central government and the states in a federal economy. We consider an environment with moral hazard, incomplete enforceability and date 0 negotiation costs. The interaction of moral hazard and incomplete enforceability may imply that when the state’s resources are ”low enough”, it is constrained efficient that the state gets a lower utility level than in autarky. When negotiation costs are considered, the state might not accept the contract. More importantly, the possibility of whether accepting or not is not monotonically determined by the state’s fiscal situation

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  • Emilio Espino

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  • Emilio Espino, 1999. "A Note On Optimal Insurance in an Information Constrained Federal Economy with Incomplete Degree of Enforceability and Negotiation Costs Abstract: This paper studies the constrained efficient intergov," IIE, Working Papers 018, IIE, Universidad Nacional de La Plata.
    • Handle: RePEc:akh:wpaper:018
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    1. Pierfederico Asdrubali & Bent E. Sørensen & Oved Yosha, 1996. "Channels of Interstate Risk Sharing: United States 1963–1990," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(4), pages 1081-1110.
    2. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-1089, July.
    3. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, vol. 64(3), pages 623-646, May.
    4. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 979-1009, October.
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