The Political Economy of a Publicly Provided Private Good with Adverse Selection
AbstractGiven heterogeneity in incomes and health risks, with asymmetric information in the latter, preferences over the public-private mix in health insurance and care are derived. Results concerning crowding-out in the presence of adverse selection are established. For low-risk individuals, crowding-out depends on risk aversion. A set of such individuals prefers a mixed public-private health care system. A majority-voting equilibrium exists. Under weak assumptions about the income distribution and tax function, both public and private sectors exist in the equilibrium. Comparing information regimes, public provision is more likely to be positive, and will not be lower, under asymmetric information. In the presence of asymmetric information, the equilibrium is more complicated than the "ends-against-the-middle" variety derived elsewhere in the literature.
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Bibliographic InfoPaper provided by Department of Economics, University of Kent in its series Studies in Economics with number 9911.
Date of creation: Oct 1999
Date of revision:
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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
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Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
- H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-03-13 (All new papers)
- NEP-CDM-2000-03-13 (Collective Decision-Making)
- NEP-MIC-2000-03-13 (Microeconomics)
- NEP-PBE-2000-03-13 (Public Economics)
- NEP-POL-2000-03-13 (Positive Political Economics)
- NEP-PUB-2000-03-13 (Public Finance)
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