Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in TRANSFERS TO FAMILIES WITH CHILDREN AS A PRINCIPAL-AGENT PROBLEM AbstractThe relationship between government and parents is modelled as a principalagent 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.

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The paper studies non-linear income taxation and linear commodity taxation in a household production context with households differentiated by market and non-market ability. In such a setting, there is an efficiency motive for re-distribution which is independent from the usual equity motive, and operates also when the social planner is indifferent to utility inequality. As a consequence, some of the policy prescriptions applicable to the case in which households differ in market ability only do not hold when households differ also in nonmarket ability. For instance, re-distribution is not necessarily from high-to low-wage households, and it is not necessarily true that the marginal rate of income tax should be zero for high incomes and positive for low incomes. In some cases, re-distribution may accentuate rather than lessen utility inequality, and can reverse the direction of income inequality relative to the laissez-faire equilibrium. Furthermore, contrary to Atkinson-Stiglitz, it may be optimal to use indirect and direct taxation simultaneously even when the utility function is separable in commodities and labour.

The axiom of insatiability within economic theory states that needs, wants and desires can never be satisfied. This axiom drives the utility function upon which most economic policy is based. Non-satiation is not a natural human condition but rather a theoretical and cultural construction. Non-satiation is a myth that has been taken as truth in traditional economic theory. In this paper, we deconstruct the myth of non-satiation and relate its impact on the goals of human well-being and sustainable development. This paper is written for community organisers and change agents with the goal of helping them to understand a foundational premise driving the current economic paradigm and what they can do about it. In this paper, we explain some basic economic theory in simple terms for the reader who is not a trained economist so that they may gain an understanding of the underpinnings of economic theory that drives current economic policies and practices, and inspiration for changing the dominant economic paradigm.