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Credible social insurance

Author

Listed:
  • Christopher Sleet

Abstract

Social insurance arrangements that are optimal from the perspective of a utilitarian planner confronting a population of privately informed agents frequently exhibit an "immiseration" property - with probability 1 an agent's continuation utility will drift downwards to its minimal level. Thus, the ex ante optimal provision of incentives implies severe ex post inequality and are time inconsistent. This paper introduces an additional friction: it assumes that the utilitarian planner can not commit. To analyse the problem without planner commitment, concepts from the dynamic contracting and sustainable plans literature are blended and the planner's problem is embedded into a policy game. Allocations can be supported as equilibria of this game if they satisfy a bound on the continuation payoffs of the planner. The optimal sustainable allocation does not exhibit immiseration. Credibility or sustainability constraints on the utilitarian planner translate into greater ex post equality than would otherwise occur.

Suggested Citation

  • Christopher Sleet, 2004. "Credible social insurance," 2004 Meeting Papers 75, Society for Economic Dynamics.
    • Handle: RePEc:red:sed004:75
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    Citations

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    Cited by:

    1. Daron Acemoglu & Michael Golosov & Aleh Tsyvinski, 2006. "Markets Versus Governments: Political Economy of Mechanisms," Levine's Bibliography 321307000000000032, UCLA Department of Economics.
    2. Ivan Werning & Emmanuel Farhi, 2005. "Inequality, Social Discounting and Estate Taxation," 2005 Meeting Papers 358, Society for Economic Dynamics.
    3. Narayana R Kocherlakota, 2005. "Advances in Dynamic Optimal Taxation," Levine's Bibliography 784828000000000518, UCLA Department of Economics.
    4. Daron Acemoglu & Michael Golosov & Aleh Tsyvinski, 2008. "Political Economy of Mechanisms," Econometrica, Econometric Society, vol. 76(3), pages 619-641, May.

    More about this item

    Keywords

    Macroeconomic policy; dynamic contracting;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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