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Social Insurance with Risk‐Reducing Investments

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  • Dan Anderberg
  • Fredrik Andersson

Abstract

A two‐sector model with sector‐dependent disability risks is presented. Working in the low‐risk sector requires skills that can be obtained by investments in education. Moral hazard precludes full insurance. The labour force allocation is responsive to the incentives created by a social insurance system. The rationale for intervention lies in the government's power to cross‐subsidize between the sectors, and it is demonstrated how the responsiveness of the labour force allocation limits cross‐subsidization. The second‐best policy is time‐inconsistent. The consistent equilibrium is explored and is argued to provide weak incentives to reduce risks.

Suggested Citation

  • Dan Anderberg & Fredrik Andersson, 2000. "Social Insurance with Risk‐Reducing Investments," Economica, London School of Economics and Political Science, vol. 67(265), pages 37-56, February.
    • Handle: RePEc:bla:econom:v:67:y:2000:i:265:p:37-56
    DOI: 10.1111/1468-0335.00194
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    Cited by:

    1. Schneider Brit S. & Schneider Udo & Ulrich Volker, 2007. "Health and the Decision to Invest in Education," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 227(5-6), pages 725-746, October.
    2. Jonathan P. Thomas & Tim Worrall, 2007. "Unemployment Insurance under Moral Hazard and Limited Commitment: Public versus Private Provision," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(1), pages 151-181, February.
    3. Fredrik Andersson, 2002. "Technological Change,Labour Contracts and Income Distribution," Finnish Economic Papers, Finnish Economic Association, vol. 15(1), pages 24-35, Spring.
    4. Jonathan P Thomas & Tim Worrall, 2002. "Unemployment Insurance under Moral Hazard and Limited Commitment: Public vs Private Provision," Public Economics 0211002, University Library of Munich, Germany.

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