A note on optimal insurance in an information constrained federal economy with incomplete degree of enforceability and negotiation costs

Authors
Espino, Emilio
Publication Year
1999
Language
English
Format
working paper
Status
Versión enviada para evaluación y publicación
Description
This paper studies the optimal insurance contract between a state and the central government in a federal economy with moral hazard, risk of repudiation (given some enforceability technology) and aggregate uncertainty. Also, it considers date 0 negotiation costs to implement this contract. The distribution of the fiscal resources locally collected by the province at t+1 are affected by period t state´s effort to collect taxes. Also, every period a state has the right to get a fixed proportion of the taxes nationally collected by the central government. These resources are identically and independently distributed across time. Using a recursive formulation of the allocation problem (following Atkeson (1991)), some basic properties of the optimal insurance contract are discussed showing when, in particular, it is actually optimal just to give up any attempt to provide insurance to the province.
Departamento de Economía
Subject
Ciencias Económicas
economía
análisis de costes
contrato
Access level
Open access
License
Creative Commons Attribution 3.0 Unported (CC BY 3.0)
Repository
SEDICI (UNLP)
Institution
Universidad Nacional de La Plata
OAI Identifier
oai:sedici.unlp.edu.ar:10915/3510