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Informal Family Insurance And The Design Of The Welfare State

Author

Listed:
  • Rafael Di Tella

    (Harvard University)

  • Robert MacCulloch

    (London School of Economics)

Abstract
We study unemployment benefit provision when the family also provides social insurance. In the benchmark case, more generous State transfers crowd out family risk--sharing one--for--one. An extension gives the State an advantage in enforcing transfers through taxes (whereas families rely on self--enforcement). More generous State transfers lead to more than one--for--one reductions in intra--family insurance, so that total transfers to the unemployed fall as the State"s generosity increases. This does not imply that the optimal size of the Welfare State is zero. Our results still hold when families are assumed to be better than the State at monitoring job search activities of unemployed. Copyright 2002 Royal Economic Society

Suggested Citation

  • Rafael Di Tella & Robert MacCulloch, 2002. "Informal Family Insurance And The Design Of The Welfare State," Economic Journal, Royal Economic Society, vol. 112(481), pages 481-503, July.
    • Handle: RePEc:ecj:econjl:v:112:y:2002:i:481:p:481-503
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    References listed on IDEAS

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    8. James M. Malcomson, 2012. "Relational Incentive Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
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    More about this item

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • D1 - Microeconomics - - Household Behavior
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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