DP3842 Efficiency-Enhancing Signalling in the Samaritan's Dilemma

Author(s): Johan N.M. Lagerlöf

Publication Date: March 2003

Keyword(s): altruism , saving , efficiency , signalling

JEL(s): D82

Programme Areas: Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP3842.asp

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.