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Incentives and Government Relief for Risk

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Louis Kaplow

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Abstract

Government relief is offered for a wide range of risks - - natural disaster, economic dislocation, sickness and injury. This paper explores the effect of such relief on incentives and the allocation of risk in a model with private insurance. It is shown that government relief is inefficient, even when its level is less than the private insurance coverage that individuals would otherwise have purchased and even when private insurance coverage is incomplete due to problems of moral hazard.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3007.

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Date of creation: Aug 1991
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Handle: RePEc:nbr:nberwo:3007

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References listed on IDEAS
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. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring. [Downloadable!] (restricted)
  2. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January. [Downloadable!] (restricted)
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  3. Arnott, Richard & Stiglitz, Joseph E., 1986. "Moral hazard and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 29(1), pages 1-24, February. [Downloadable!] (restricted)
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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. Bum J. Kim & Harris Schlesinger, 2004. "Adverse Selection in an Insurance Market with Government-Guaranteed Subsistence Levels," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  2. Skees, Jerry & Varangis, Panos & Larson, Donald & Siegel, Paul, 2002. "Can Financial Markets be Tapped to Help Poor People Cope with Weather Risks?," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
    Other versions:
  3. Annette Hofmann, 2007. "Internalizing externalities of loss prevention through insurance monopoly: an analysis of interdependent risks," The Geneva Papers on Risk and Insurance Theory, Springer, vol. 32(1), pages 91-111, June. [Downloadable!] (restricted)
  4. Howard Kunreuther & Mark Pauly, 2006. "Rules rather than discretion: Lessons from Hurricane Katrina," Journal of Risk and Uncertainty, Springer, vol. 33(1), pages 101-116, September. [Downloadable!] (restricted)
  5. Barnett, Barry J. & Coble, Keith H., 1999. "Understanding Crop Insurance Principles: A Primer For Farm Leaders," Research reports 15784, Mississippi State University, Department of Agricultural Economics. [Downloadable!]
  6. Marielle Brunette & Laure Cabantous & Stéphane Couture & Anne Stenger, 2008. "Insurance Demand for Disaster-type Risks and the Separation of Attitudes toward Risk and Ambiguity: an Experimental Study," Working Papers - Cahiers du LEF 2008-05, Laboratoire d'Economie Forestiere, AgroParisTech-INRA. [Downloadable!]
  7. 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)
  8. David M. Cutler & Richard J. Zeckhauser, 1997. "Reinsurance for Catastrophes and Cataclysms," NBER Working Papers 5913, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Marielle Brunette & Stephane Couture, 2007. "Effects of Public Compensation for Disaster Damages on Private Insurance and Forest Management Decisions," Working Papers - Cahiers du LEF 2007-06, Laboratoire d'Economie Forestiere, AgroParisTech-INRA. [Downloadable!]
  10. Louis Kaplow, 2003. "Transition Policy: A Conceptual Framework," NBER Working Papers 9596, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Rachel Huang & Larry Tzeng, 2007. "Insurer’s insolvency risk and tax deductions for the individual’s net losses," The Geneva Papers on Risk and Insurance Theory, Springer, vol. 32(2), pages 129-145, December. [Downloadable!] (restricted)
    Other versions:
  12. Anonymous & Roe, Terry L., 1999. "Policy Reform, Market Stability, And Food Security; Proceedings Of A Conference Of The International Agricultural Trade Research Consortium," Policy Reform, Market Stability, and Food Security Conference, June 26-27, 1998, Alexandria Virginia 14538, International Agricultural Trade Research Consortium. [Downloadable!]
  13. Mahul, Olivier & Gurenko, Eugene, 2006. "The macro financing of natural hazards in developing countries," Policy Research Working Paper Series 4075, The World Bank. [Downloadable!]
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