Altruism, the Samaritan's dilemma, and government transfer policy

TLDR

The model considers rich altruists and risk‑averse poor facing potential losses. The government, acting for the rich, provides unconditional transfers that may lead the poor to abandon insurance and rely on private charity. Altruism justifies public insurance for the poor, but unconditional transfers encourage reliance on private charity, harming efficiency, which can be mitigated by in‑kind insurance transfers. © 1995 American Economic Association.

Abstract

This paper shows that altruism provides an efficiency rationale for public provision of insurance to the poor. The framework is one in which there are rich altruists and risk-averse poor who face some possibility of loss. The government represents the rich and makes transfers on their behalf. With unconditional transfers, the poor may forgo insurance and rely on private charity to bail them out in the event of loss. This reliance on private charity has adverse efficiency effects. These may be avoided if the government makes in-kind transfers of insurance. Copyright 1995 by American Economic Association.