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Economic Efficiency and Mixed Public/Private Insurance

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Author Info

  • Blomqvist, Ake

    (Department of Economics)

  • Johansson, Per-Olov

    ()
    (Centre for Health Economics)

Abstract

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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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 110.

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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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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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Web page: http://www.hhs.se/
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Keywords: Health insurance; moral hazard; optimal insurance; government insurance;

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References

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  1. Selden, Thomas M., 1993. "Should the government provide catastrophic insurance?," Journal of Public Economics, Elsevier, Elsevier, vol. 51(2), pages 241-247, June.
  2. Blomqvist, Ake, 1997. "Optimal non-linear health insurance," Journal of Health Economics, Elsevier, Elsevier, vol. 16(3), pages 303-321, June.
  3. Pauly, Mark V, 1986. "Taxation, Health Insurance, and Market Failure in the Medical Economy," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 24(2), pages 629-75, June.
  4. Besley, Timothy, 1989. "Publicly provided disaster insurance for health and the control of moral hazard," Journal of Public Economics, Elsevier, Elsevier, vol. 39(2), pages 141-156, July.
  5. Zeckhauser, Richard, 1970. "Medical insurance: A case study of the tradeoff between risk spreading and appropriate incentives," Journal of Economic Theory, Elsevier, Elsevier, vol. 2(1), pages 10-26, March.
  6. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(1), pages 44-62, February.
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Citations

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Cited by:
  1. Johansson, Per-Olov, 2000. "Properties of actuarially fair and pay-as-you-go health insurance schemes for the elderly. An OLG model approach," Journal of Health Economics, Elsevier, Elsevier, vol. 19(4), pages 477-498, July.
  2. Samuel Bowles & Herbert Gintis, 2000. "Risk Aversion, Insurance, and the Efficiency-Equality Tradeoff," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2000-03, University of Massachusetts Amherst, Department of Economics.
  3. Raj Chetty & Emmanuel Saez, 2008. "Optimal Taxation and Social Insurance with Endogenous Private Insurance," NBER Working Papers 14403, National Bureau of Economic Research, Inc.
  4. Finkelstein, Amy, 2004. "The interaction of partial public insurance programs and residual private insurance markets: evidence from the US Medicare program," Journal of Health Economics, Elsevier, Elsevier, vol. 23(1), pages 1-24, January.
  5. Martinez-Giralt, Xavier & Pita Barros, Pedro Luis, 2000. "Public and Private Provision of Health Care," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2491, C.E.P.R. Discussion Papers.
  6. Francesca BARIGOZZI, 2006. "Supplementary Insurance with 'ex post' moral hazard: efficiency and redistribution," Annales d'Economie et de Statistique, ENSAE, issue 83-84, pages 295-325.
  7. Amy Finkelstein, 2002. "The Interaction of Partial Public Insurance Programs and Residual Private Insurance Markets: Evidence from the U.S. Medicare Program," NBER Working Papers 9031, National Bureau of Economic Research, Inc.
  8. Hoel, Michael, 2007. "What should (public) health insurance cover?," Journal of Health Economics, Elsevier, Elsevier, vol. 26(2), pages 251-262, March.
  9. Omar Paccagnella & Vincenzo Rebba & Guglielmo Weber, 2013. "VOLUNTARY PRIVATE HEALTH INSURANCE AMONG THE OVER 50s IN EUROPE," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 22(3), pages 289-315, 03.
  10. Hoel, Michael, 2005. "Prioritizing public health expenditures when there is a private alternative," Memorandum, Oslo University, Department of Economics 16/2005, Oslo University, Department of Economics.
  11. Johannesson, Magnus & Johansson, Per-Olov & Söderqvist, Tore, 1997. "Time Spent on Waiting Lists for Medical Care: An Insurance Approach," Working Paper Series in Economics and Finance, Stockholm School of Economics 192, Stockholm School of Economics.
  12. Rachel J. Huang & Larry Y. Tzeng, 2007. "Insurer's insolvency risk and tax deductions for the individual's net losses," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 32(2), pages 129-145, December.
  13. Selden, Thomas M., 1997. "More on the economic efficiency of mixed public/private insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 66(3), pages 517-523, December.
  14. Petretto, Alessandro, 1999. "Optimal social health insurance with supplementary private insurance," Journal of Health Economics, Elsevier, Elsevier, vol. 18(6), pages 727-745, December.
  15. Jihong Ding & Minglai Zhu, 2009. "A theoretical investigation of the reformed public health insurance in urban China," Frontiers of Economics in China, Springer, Springer, vol. 4(1), pages 1-29, March.

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