Towards a New Social Contract: from simple theory to complex reality

A steadily increasing amount of literature in the social sciences points at the insurmountable difficulties that traditional management of the large flows of values inevitably will run into (distribution of labour, pensions, profits, social transfers etc) - and calls for the implementation of a new social contract. In this paper a rather crude, but general formal analytical treatment of the interaction of these processes is presented. Its plausibility as well as its difference to other popular economic approaches (e.g. OLG models, social accounting, and the like) are briefly surveyed in chapter 1. The following chapter is devoted to the implications of the proposed simple model. Several variants and their impact are discussed to arrive at some insight into the possibilities of a new design of the interaction mechanisms - i.e. a new social contract. Some lessons from the growing literature on mechanism design (e.g. incentive compatibility) are shown to be of pivotal importance. The concluding chapter finally compares our theoretical findings with the actual attempts in some European countries to cope with the challenges of a new social contract. This part builds heavily on recent empirical studies and sets out to view them in a common theoretical perspective