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Social insurance and redistribution with moral hazard and adverse selection

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Author Info
BOADWAY, Robin
LEITE-MONTEIRO, Manuel
MARCHAND, Maurice
PESTIEAU, Pierre

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Abstract

Rochet (1989) showed that with distortionary income taxes, social insurance is a desirable redistributive device when risk and ability are negatively correlated. This finding is reexamined when ex post moral hazard and adverse selection are included, and under different informational assumptions. Individuals can take actions influencing the size of the loss in the event of accident (or ill health). Social insurance can be supplemented by private insurance, but private insurance markets are affected by both adverse selection and moral hazard. We study how equity and efficiency considerations should be traded off in choosing the optimal coverage of social insurance when those features are introduced. The case for social insurance is strongest when the government is well informed about household productivity.

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Publisher Info
Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2004083.

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Date of creation: 01 Dec 2004
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Handle: RePEc:cor:louvco:2004083

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Related research
Keywords: social insurance; redistribution; market failures;

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Find related papers by JEL classification:
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. David M. Cutler, 2002. "Health Care and the Public Sector," NBER Working Papers 8802, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Robin Boadway & Manuel Leite-Monteiro & Maurice Marchand & Pierre Pestieau, 2002. "Social Insurance and Redistribution," Working Papers 1004, Queen's University, Department of Economics. [Downloadable!]
    Other versions:
  3. Eckstein, Zvi & Eichenbaum, Martin & Peled, Dan, 1985. "Uncertain lifetimes and the welfare enhancing properties of annuity markets and social security," Journal of Public Economics, Elsevier, vol. 26(3), pages 303-326, April. [Downloadable!] (restricted)
  4. Jean Hindriks & Philippe De Donder, 2001. "The Politics of Redistributive Social Insurance," Working Papers 444, Queen Mary, University of London, Department of Economics. [Downloadable!]
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  5. Petretto, Alessandro, 1999. "Optimal social health insurance with supplementary private insurance," Journal of Health Economics, Elsevier, vol. 18(6), pages 727-745, December. [Downloadable!] (restricted)
  6. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-77, June. [Downloadable!] (restricted)
  7. Blomqvist, Ake & Horn, Henrik, 1984. "Public health insurance and optimal income taxation," Journal of Public Economics, Elsevier, vol. 24(3), pages 353-371, August. [Downloadable!] (restricted)
  8. Diamond, Peter, 1992. "Organizing the Health Insurance Market," Econometrica, Econometric Society, vol. 60(6), pages 1233-54, November. [Downloadable!] (restricted)
  9. Olivia S. Mitchell, 1998. "Administrative Costs in Public and Private Retirement Systems," NBER Chapters, in: Privatizing Social Security, pages 403-456 National Bureau of Economic Research, Inc. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dominique Henriet & Jean-Charles Rochet, 2006. "Is public health insurance an appropriate instrument for redistribution?," Annales d'Economie et de Statistique, ADRES, issue 83-84, pages 03, Juillet-D. [Downloadable!]
    Other versions:
  2. Anja Deelen, 2005. "Adverse selection in disability insurance: empirical evidence for Dutch firms," CPB Discussion Papers 46, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  3. Nick Netzer & Florian Scheuer, 2005. "Taxation, Insurance and Precautionary Labor," Discussion Papers of DIW Berlin 516, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  4. Raj Chetty & Emmanuel Saez, 2008. "Optimal Taxation and Social Insurance with Endogenous Private Insurance," NBER Working Papers 14403, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Steven Poelhekke & Frederick Van der Ploeg, 2008. "Globalization and the Rise of Mega-Cities in the Developing World," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Robin Boadway & Pierre Pestieau, 2006. "Tagging and redistributive taxation," Annales d'Economie et de Statistique, ADRES, issue 83-84, pages 05, Juillet-D. [Downloadable!]
    Other versions:
  7. Francesca Barigozzi, 2006. "Supplementary Insurance with 'ex post' moral hazard: efficiency and redistribution," Annales d'Economie et de Statistique, ADRES, issue 83-84, pages 12, Juillet-D. [Downloadable!]
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  8. Yukihiro Nishimura, 2009. "Redistributive taxation and social insurance under adverse selection in the insurance market," International Tax and Public Finance, Springer, vol. 16(2), pages 176-197, April. [Downloadable!] (restricted)
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