In this paper we discuss the efficiency properties of insurance markets where supplementary private insurance is allowed to exist together with a compulsory government insurance plan. Our main conclusion, which is contrary to both those of Besley (1989) and Selden (1993), is that in a simple model focussing on the moral hazard problem alone, a mixed system will generally be strictly less efficient than a purely private (competitive) system. We also show that there is a flaw in Selden's (1993) main proposition, which at least in part invalidates his result on the welfare properties of systems of mixed government/private insurance.
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Length: 16 pages Date of creation: Mar 1996 Date of revision: Publication status: Published in Journal of Public Economics, 1997, pages 505-516. Handle: RePEc:hhs:hastef:0110
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Find related papers by JEL classification: I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
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