Transfers to Families with Children as a Principal-Agent Problem

17 Pages Posted: 27 Mar 2001

See all articles by Alessandro Cigno

Alessandro Cigno

Department of Economics and Management, University of Florence; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics; Centre for Household, Income, Labour and Demographic Economics (CHILD)

Annalisa Luporini

University of Florence - Dipartimento di Scienze Economiche; CESifo (Center for Economic Studies and Ifo Institute)

Anna Pettini

University of Florence

Date Written: October 2000

Abstract

The relationship between government and parents is modelled as a principal-agent problem, with the former in the role of principal and the latter in the role of agents. We make three major points. The first is that, if the well-being of the child depends not only on luck, but also on parental actions that the government cannot readily observe, the latter can influence parental behaviour indirectly, by conditioning transfers on performance. The second point is that, if there are market inputs into the making of a happy or successful child, which the government can observe, but cannot ascribe to any particular parent or child because they are bought anonymously, an income transfer policy can be usefully complemented by an indirect tax policy that systematically distorts prices in favour of these inputs. The third is that, if parents care about their children, insurance and incentive considerations must be tempered by the need to compensate parents who have the misfortune of getting a child with low ability or, more generally, less well equipped to make the most of life. Ways of making these findings operative are discussed in some detail.

JEL Classification: D82, H21, J13

Suggested Citation

Cigno, Alessandro and Luporini, Annalisa and Pettini, Anna, Transfers to Families with Children as a Principal-Agent Problem (October 2000). Available at SSRN: https://ssrn.com/abstract=263307 or http://dx.doi.org/10.2139/ssrn.263307

Alessandro Cigno (Contact Author)

Department of Economics and Management, University of Florence ( email )

Via delle Pandette 21
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Firenze, 50127
Italy
+39 055-4374491 (Phone)
+39 055-4374919 (Fax)

HOME PAGE: http://www.alessandrocigno.it/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Household, Income, Labour and Demographic Economics (CHILD) ( email )

Turin, TO
Italy

Annalisa Luporini

University of Florence - Dipartimento di Scienze Economiche ( email )

via delle Pandette 9
Florence 50127
Italy

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Anna Pettini

University of Florence ( email )

via delle Pandette 21 - ed. D5
Florence, 50127
Italy

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