Informal Family Insurance and the Design of the Welfare State

23 Pages Posted: 22 Dec 2002  

Rafael Di Tella

Harvard Business School - Business, Government and the International Economy Unit; National Bureau of Economic Research (NBER)

Robert MacCulloch

Imperial College London - Tanaka Business School

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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.

Suggested Citation

Di Tella, Rafael and MacCulloch, Robert, Informal Family Insurance and the Design of the Welfare State. Economic Journal, Vol. 112, pp. 481-503, 2002. Available at SSRN: https://ssrn.com/abstract=320557

Rafael Di Tella (Contact Author)

Harvard Business School - Business, Government and the International Economy Unit ( email )

Cambridge, MA
United States
617-495-5048 (Phone)
617-496-5985 (Fax)

HOME PAGE: http://www.people.hbs.edu/rditella/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Robert MacCulloch

Imperial College London - Tanaka Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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