Efficiency-Enhancing Signalling in the Samaritan's Dilemma

Abstract

Suppose an altruistic person, A, is willing to transfer resources to a second person, B, if B comes upon hard times. If B anticipates that A will act in this manner, B will save too little from both agents' point of view. This is the Samaritan's dilemma. The logic of the dilemma has been employed in an extensive literature, addressing a wide range of both normative and positive issues. This paper shows, however, that the undersaving result is mitigated if we relax the standard assumption of complete information. The reason for this is that if A is uncertain about how big B's need for support is, B will have an incentive to signal that he is in great need by saving more that he otherwise would have done.

Keywords: Altruism, saving, efficiency, signalling

JEL Classification: D64, D82