Social Insurance, Information Revel ation, and Lack of Commitment
A bstract:
We study the optimal provision of insurance against unobservable idiosyncratic shocks in a setting in whic h a benevolent government cannot commit. A continuum of agents and the gove rnment play an infinitely repeated game. Actions of the government are cons trained only by the threat of reverting to the worst subgame perfect equili brium (SPE). We construct a recursive problem that characterizes the resour ce allocation and information revelation on the Pareto frontier of the SPE and show incentives to reveal information are provided by promised utilitie s. We prove a version of the Revelation Principle and find an upper bound o n the maximum number of messages that are needed to achieve the optimal all ocation. Agents play mixed strategies over that message set to limit the am ount of information transmitted to the government. The central feature of t he optimal contract is that it is optimal for agents who enter a period wit h low promised utility to provide no information to the government, and rec eive no insurance against shocks they experience in current period, while a gents with high promised utility reveal precise information about their cur rent shock and receive insurance as in economies with full commitment by th e government.
DTSTAMP:20260406T103017Z DTSTART:20140528T130000Z DTEND:20140528T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR