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Discussion Papers, Forschungsprofessur & Projekt "The Future of Fiscal Federalism" >
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| Title: | | Public self-insurance and the Samaritan's dilemma in a federation  |
| Authors: | | Lohse, Tim Robledo, Julio R. |
| Issue Date: | | 2012 |
| Series/Report no.: | | Discussion papers, Wissenschaftszentrum Berlin für Sozialforschung, Schwerpunkt Märkte und Politik: Forschungsprofessur & Projekt The Future of Fiscal Federalism SP II 2012-103 |
| Abstract: | | Motivated by recent disasters, this paper analyzes the risk sharing aspect in a federation. The regions can be hit by a shock leading to losses that occur with an exogenous probability and in a stochastically independent way. The regions can spend effort on selfinsurance to reduce the size of the loss. Being part of a federation has two countervailing -elfare effects. On the one hand, there is the well known welfare increase due to risk pooling. On the other hand, the self-insurance effort is a public good, because all regions benefit from the reduction of the loss. There exists a Samaritan's dilemma kind of effect whereby regions reduce their self-insurance effort potentially leading to an overall welfare decrease. The central government can solve this dilemma by committing to fixed rather than variable transfers. This induces regions that behave non-cooperatively to still choose the efficient level of self-insurance effort. |
| Subjects: | | intergovernmental transfers self-insurance disaster policy |
| JEL: | | H77 H41 H72 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Publikationen von Forscherinnen und Forschern des WZB Discussion Papers, Forschungsprofessur & Projekt "The Future of Fiscal Federalism"
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