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The Economy of Obligation: Incomplete Contracts and the Cost of the Welfare State

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  • Avner Offer

Abstract

Western governments typically pay out some 30 percent of GDP for social purposes. This is financed by taxation on a pay-as-you-go (PAYGO) basis. How efficient are these transfers, and can market or other mechanisms do it better? The problem arises since no individual stands alone. During the life cycle there are several periods of unavoidable dependency, in which there is no earning and little to bargain with: motherhood, infancy, childhood, education, illness, disability, unemployment, old age. The problem is how to transfer resources from 'producers' to 'dependants' over the life cycle. The market solution is for individuals to accumulate financial assets and to transfer them over the life cycle by means of long-term contracts with financial intermediaries.

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  • Avner Offer, 2012. "The Economy of Obligation: Incomplete Contracts and the Cost of the Welfare State," Oxford Economic and Social History Working Papers _103, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:esohwp:_103
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    Cited by:

    1. Avner Offer, 2013. "Narrow Banking, Real Estate, and Financial Stability in the UK, c.1870-2010," Oxford Economic and Social History Working Papers _116, University of Oxford, Department of Economics.
    2. Pieter Vanhuysse & Marton Medgyesi & Robert I Gal, 2021. "Welfare states as lifecycle redistribution machines: Decomposing the roles of age and socio-economic status shows that European tax-and-benefit systems primarily redistribute across age groups," PLOS ONE, Public Library of Science, vol. 16(8), pages 1-18, August.
    3. Avner Offer, 2017. "The market turn: from social democracy to market liberalism," Economic History Review, Economic History Society, vol. 70(4), pages 1051-1071, November.
    4. Aled Davies, 2012. "The Evolution of British Monetarism: 1968-1979," Oxford University Economic and Social History Series _104, Economics Group, Nuffield College, University of Oxford.
    5. Avner Offer, 2013. "Narrow banking, real estate, and financial stability in the UK, c.1870-2010," Oxford University Economic and Social History Series _116, Economics Group, Nuffield College, University of Oxford.
    6. Aled Davies, 2012. "The Evolution of British Monetarism: 1968-1979," Oxford Economic and Social History Working Papers _104, University of Oxford, Department of Economics.

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