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Social Insurance and Redistribution with Moral Hazard and Adverse Selection

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  • Boadway, Robin
  • Leite-Monteiro, Manuel
  • Marchand, Maurice G.
  • Pestieau, Pierre

Abstract

This Paper starts from the result of Rochet (1989), that with distortionary income taxes social insurance is a desirable redistributive device when risk and ability are negatively correlated. This finding is re-examined 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. The main purpose of the present Paper is to study how equity and efficiency considerations should be traded off in choosing the optimal coverage of social insurance when those features are introduced.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4253.

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Date of creation: Feb 2004
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Handle: RePEc:cpr:ceprdp:4253

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Keywords: market failures; redistribution; social insurance;

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References

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  1. De Donder, Philippe & Hindriks, Jean, 2003. "The Politics of Redistributive Social Insurance," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  2. BOADWAY, Robin & LEITE-MONTEIRO, Manuel & MARCHAND, Maurice & PESTIEAU, Pierre, 2001. "Social insurance and redistribution," CORE Discussion Papers 2001041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Petretto, Alessandro, 1999. "Optimal social health insurance with supplementary private insurance," Journal of Health Economics, Elsevier, vol. 18(6), pages 727-745, December.
  4. 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.
  5. CREMER, Helmuth & PESTIEAU, Pierre, 1995. "Redistributive Taxation and Social Insurance," CORE Discussion Papers 1995054, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Diamond, Peter, 1992. "Organizing the Health Insurance Market," Econometrica, Econometric Society, vol. 60(6), pages 1233-54, November.
  7. 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.
  8. David M. Cutler, 2002. "Health Care and the Public Sector," NBER Working Papers 8802, National Bureau of Economic Research, Inc.
  9. Blomqvist, Ake & Horn, Henrik, 1984. "Public health insurance and optimal income taxation," Journal of Public Economics, Elsevier, vol. 24(3), pages 353-371, August.
  10. 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.
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Citations

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Cited by:
  1. Nick Netzer & Florian Scheuer, 2005. "Taxation, Insurance and Precautionary Labor," Discussion Papers of DIW Berlin 516, DIW Berlin, German Institute for Economic Research.
  2. Susanna Kochskämper, 2012. "Reformdebatten in der Krankenversicherung vor dem Hintergrund des europäischen Binnenmarktes," Otto-Wolff-Institut Discussion Paper Series 02/2012, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.
  3. Frederick van der Ploeg, 2004. "The Welfare State, Redistribution and the Economy, Reciprocal Altruism, Consumer Rivalry and Second Best," CESifo Working Paper Series 1234, CESifo Group Munich.
  4. Steven Poelhekke & Frederick Van der Ploeg, 2008. "Globalization and the Rise of Mega-Cities in the Developing World," CESifo Working Paper Series 2208, CESifo Group Munich.
  5. Kifmann, Mathias & Roeder, Kerstin, 2011. "Premium subsidies and social health insurance: Substitutes or complements?," Journal of Health Economics, Elsevier, vol. 30(6), pages 1207-1218.
  6. Nick Netzer & Florian Scheuer, 2010. "Competitive screening in insurance markets with endogenous wealth heterogeneity," Economic Theory, Springer, vol. 44(2), pages 187-211, August.
  7. Janet Currie & Firouz Gahvari, 2008. "Transfers in Cash and In-Kind: Theory Meets the Data," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 333-83, June.
  8. Anja Deelen, 2005. "Adverse selection in disability insurance; empirical evidence for Dutch firms," CPB Discussion Paper 46, CPB Netherlands Bureau for Economic Policy Analysis.
  9. Raj Chetty & Emmanuel Saez, 2008. "Optimal Taxation and Social Insurance with Endogenous Private Insurance," NBER Working Papers 14403, National Bureau of Economic Research, Inc.
  10. 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.

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