The Evaluation of Pension Reforms in the Public Sector: A Case Study of the Paris Subway Drivers
In: Journal of institutional and theoretical economics: JITE, Band 174, Heft 2, S. 245
ISSN: 1614-0559
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In: Journal of institutional and theoretical economics: JITE, Band 174, Heft 2, S. 245
ISSN: 1614-0559
In: The Rand journal of economics, Band 46, Heft 3, S. 546-576
ISSN: 1756-2171
We characterize the set of second‐best "menus" of student‐loan contracts in an economy with risky labor‐market outcomes, adverse selection, moral hazard, and risk aversion. We combine student loans with optimal income taxation. Second‐best optima provide incomplete insurance because of moral hazard. Optimal repayments must be income contingent, or the income tax must comprise a graduate tax. Individuals are ex ante unequal because of differing probabilities of success, and ex post unequal, because taxation trades off incentives and redistribution. In addition, second‐best optima exhibit an interim equalization property: the poststudy but prework expected utilities of newly graduated student types must be equal.
To evaluate pension reforms in public services, we put forward a simple criterion, the actuarial cost of a worker, per year of service. This measure of cost is the expected, discounted sum of net real wages and pension benefits, earned by a worker over his entire life cycle, divided by the number of years of service. We show the possibility of reforms such that (i), the actuarial cost of a worker per year of service is reduced, (ii) the utility of workers does not decrease and (iii) the pension fund deficits do not increase. Workers can willingly postpone retirement in exchange for increased final salaries and pensions. Present and future public subsidies may at the same time be reduced. We propose a quantitative analysis of the 2008 reform of the Paris Metro pensions. Focusing on the case of train drivers, we show that the reform should save public funds, but only in the long run. During a long transition period, the reform is likely to end up with larger State subsidies to the pension scheme. The reform can be interpreted as a deal between public authorities and insiders at the expense of recent recruits. A reform preserving the public budget from an outright increase in social costs could have been both technically feasible and politically acceptable.
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In: CESifo Working Paper Series No. 5431
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In: European Journal of Political Economy, Band 36, S. 89-116
In: European journal of political economy, Band 36, S. 89-116
ISSN: 1873-5703
We propose a model of strikes in a relational (or self-enforcing) contract framework. The employer has private information about firm profitability, proposes a wage and a bonus, and can outsource part of the production, in each period. The union can either go on strike or reduce the worker's effort (i.e., decide a slowdown or work-to-rule) as a response to a low wage or a low bonus. We construct perfect public equilibria in which strikes (or slowdown) appear randomly on the equilibrium path, during finite-duration spells triggered by the occurrence of a low-profitability state. Equilibria exhibit money-burning (i.e., conflict) and wage-compression as in the recent literature on relational contracts; they are first-best inefficient. We discuss empirical implications of the model and applications to the public sector. Paris dustmen are taken as an illustration. An important advantage of our theory is that it allows for equilibrium regime changes, induced by changes in the environment. Following a drop in outsourcing costs, strikes may disappear and be replaced by other forms of conflict that are less easily observable. This has consequences for the empirical work on strikes. [Copyright Elsevier B.V.]
In: CESifo Working Paper Series No. 4279
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In: Public choice, Band 153, Heft 3-4, S. 419-445
ISSN: 1573-7101
We propose a normative theory of the number of representatives based on a model of a representative democracy. We derive a formula giving the number of representatives as proportional to the square root of total population. Simple tests of the formula on a sample of a 100 countries yield good results. We then discuss the appropriateness of the number of representatives in some countries. It seems that the United States has too few representatives, while France and Italy have too many. The excess number of representatives matters: it is positively correlated with indicators of red tape and barriers to entrepreneurship. Adapted from the source document.
In: Public choice, Band 153, Heft 3, S. 419-445
ISSN: 0048-5829
In: Public choice, Band 153, Heft 3-4, S. 419-445
ISSN: 1573-7101
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Working paper
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Working paper
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We study a model of public decision-making in simple public goods economies with moral hazards and adverse selection. Economic agents must invest resources (or provide effort) to discover their own preferences. We consider direct revelation mechanisms based on sampling. A sample of agents is drawn in the population, and each member of the sample reports a preferences type to a Principal. The determinants of the "representative sample" size are studied. The structure and magnitude of effort and sampling costs affects the optimal number of representatives. If the net social value of the effort is high, first and second best optimality require a maximal sample (or "direct democracy"). If, on the contrary, effort is too costly, the recourse to samples ("representative democracy") is justified as a second best. To obtain the results, we not only take effort and revelation incentives into account, but also restrict decision rules to satisfy an additional property of robustness to opportunistic manipulation by the Principal, which forbids the use of a priori knowledge in public decision procedures.
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In the present article, Tiebout meets Laffont and Tirole in the land of Fiscal Federalism. We use a non-trivial Principal-Multi-Agent model to characterize the optimal intergovernmental grant schedule, when the cost of local public goods depends on hidden characteristics and actions of local governments, and under citizen free mobility. We show that local governments earn informational rents, and how optimal local taxes, public good production levels and land prices are jointly distorted at the second-best optimum, as a consequence of free mobility and asymmetric information. The effect of informational asymmetries is to decrease the average production of public goods and to increase the inter-jurisdictional variance of taxes and public-good production.
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