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Public and Private Insurance with Costly Transactions

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  • Bertola, Giuseppe

    ()
    (EDHEC Business School)

  • Koeniger, Winfried

    ()
    (University of St. Gallen)

Abstract

We characterize how public insurance schemes are constrained by hidden financial transactions. When non-exclusive private insurance entails increasing unit transaction costs, public transfers are only partly offset by hidden private transactions, and can influence consumption allocation. We show that efficient transfer schemes should take into account the impact of insurance on unobservable effort and saving choices as well as the relative cost of public and private insurance technologies. We provide suggestive evidence for the empirical relevance of these results by inspecting the cross-country relationship between available indicators of insurance transaction costs and variation in public and private insurance.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5201.

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Length: 34 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5201

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Keywords: public transfers; private insurance; moral hazard; transaction costs;

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References

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  1. Pricila Maziero, 2009. "Non-Exclusive Dynamic Contracts, Competition, and the Limits of Insurance," 2009 Meeting Papers, Society for Economic Dynamics 509, Society for Economic Dynamics.
  2. Bisin, Alberto & Gottardi, Piero, 1999. "Competitive Equilibria with Asymmetric Information," Journal of Economic Theory, Elsevier, Elsevier, vol. 87(1), pages 1-48, July.
  3. Tsyvinski, A. & Golosov, M., 2004. "Optimal Taxation with Endogenous Insurance Markets," 2004 Meeting Papers, Society for Economic Dynamics 124, Society for Economic Dynamics.
  4. Dirk Krueger & Fabrizio Perri, 2009. "Public versus Private Risk Sharing," NBER Working Papers 15582, National Bureau of Economic Research, Inc.
  5. Bizer, David S & DeMarzo, Peter M, 1992. "Sequential Banking," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(1), pages 41-61, February.
  6. Árpád Ábrahám & Nicola Pavoni, 2005. "The Efficient Allocation of Consumption under Moral Hazard and Hidden Access to the Credit Market," Journal of the European Economic Association, MIT Press, MIT Press, vol. 3(2-3), pages 370-381, 04/05.
  7. Ábrahám, Árpád & Koehne, Sebastian & Pavoni, Nicola, 2011. "On the first-order approach in principal-agent models with hidden borrowing and lending," Journal of Economic Theory, Elsevier, Elsevier, vol. 146(4), pages 1331-1361, July.
  8. University of Venice & Nicola Pavoni & Piero Gottardi, 2008. "Ramsey Asset Taxation under Asymmetric Information," 2008 Meeting Papers 309, Society for Economic Dynamics.
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Cited by:
  1. Bertola, Giuseppe & Lo Prete, Anna, 2010. "Whence Policy? Government Policies, Finance, and Economic Integration," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7820, C.E.P.R. Discussion Papers.

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