In this paper we study the effects of certain types of public compulsory insurance arrangements for aggregate shocks on private allocations in environments with limited commitment. We show that this type of insurance can improve the wellbeing of private situations, but it can also deteriorate it. We also describe how different characteristics of the environment affect the role of public insurance. Using data on the Mexican PROGRESA program, we document the impact that some government programs have in crowding out private transfers. (C) 2000 Elsevier Science B.V. All rights reserved.
Bibliographical noteFunding Information:
Rı́os-Rull thanks the National Science Foundation for Grant SBR-9309514 and the University of Pennsylvania Research Foundation for their support. Thanks to Fabrizio Perri for his comments and for his help with the code and to Tim Besley, Ethan Ligon and Robert Holzmann. Finally, we would like to thank José Gómez de León and Patricia Muniz of PROGRESA for permission to use the data and Ana Santiago and Graciela Teruel for answering several questions about the data.
Copyright 2004 Elsevier Science B.V., Amsterdam. All rights reserved.
- Consumption smoothing
- Incomplete contracts
- Public insurance