This paper incorporates the phenomenon of time inconsistency into the
problem of designing an optimal transfer schedule. It is shown that if program
beneciaries are time inconsistent and receive all of the resources in just one
payment, then the equilibrium allocation is always inecient. In the spirit of
the second welfare theorem, we show that any ecient allocation can be ob-
tained in equilibrium when the policymaker has full information. This assump-
tion is relaxed by introducing uncertainty and asymmetric information into the
model. The optimal solution reflects the dilemma that a policymaker has to
face when playing the roles of commitment enforcer and insurance provider
simultaneously.
