DP3842 | Efficiency-Enhancing Signalling in the Samaritan's Dilemma

Publication Date

23/03/2003

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Abstract

Suppose an altruistic person - A - is willing to transfer resources to a second person - B - if B comes upon hard times. If B anticipates that A will act in this manner, B will save too little from both agents? point of view. This is the Samaritan?s dilemma. The logic of the dilemma has been employed in an extensive literature, addressing a wide range of both normative and positive issues. This Paper shows, however, that the under-saving result is mitigated if we relax the standard assumption of complete information. The reason for this is that if A is uncertain about how big B?s need for support is, B will have an incentive to signal that they are in great need by saving more that they otherwise would have done.