Working Paper Series
Public and Private Welfare State Institutions: A Formal Theory of American Exceptionalism
Abstract: I construct a model of public policy development, and use
the model to explain why the United States has a comparatively small public
sector, but instead a large "private welfare state" with employment-based
benefits. The key factors are politically organized firms and labor unions.
These interest groups can use campaign support to influence a political
decision-maker who decides whether to implement a social benefit. In
addition, the firms can influence the outcome indirectly by privately
providing their own workers with the benefit. This setup leads to three
possible outcomes. In the first, no one is provided the social benefit. In
the second, all workers receive it through government provision. In the
third, some workers receive the policy, through their employers. I argue
that the features leading to the third equilibrium correspond closely to
political institutions and industry characteristics of the US, while the
features of the second equilibrium better describe European countries.
Keywords: Political Economy; Interest Groups; Institutions; Welfare States; (follow links to similar papers)
JEL-Codes: D72; D78; H11; H50; N42; P51; (follow links to similar papers)
56 pages, February 5, 2010
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