DP3842 Efficiency-Enhancing Signalling in the Samaritan's Dilemma

Author(s): Johan N. M. Lagerlöf
Publication Date: March 2003
Keyword(s): altruism, efficiency, saving, signalling
JEL(s): D82
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3842

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.