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Insurance design in the presence of safety nets

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  • Teh, Tse-Ling

Abstract

Safety net assistance and insurance exist to manage risk and improve welfare. This shared goal may lead to crowding out. In a new approach, this paper analyzes the interaction of assistance with two dimensions of insurance design: level of coverage and types of risks covered. In a society of risk averse vulnerable individuals and risk neutral assistance providers, Pareto improvements in welfare are achieved through incompleteness in the types of risks covered. The results imply that safety nets promote demand for and the emergence of incomplete insurance. These results have a wide application to insurance markets where safety nets are available, including health care, disaster aid and social welfare.

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  • Teh, Tse-Ling, 2017. "Insurance design in the presence of safety nets," Journal of Public Economics, Elsevier, vol. 149(C), pages 47-58.
    • Handle: RePEc:eee:pubeco:v:149:y:2017:i:c:p:47-58
    DOI: 10.1016/j.jpubeco.2017.03.001
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    Cited by:

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    2. Zimmermann, Laura, 2020. "Why Guarantee Employment? Evidence from a Large Indian Public-Works Program," GLO Discussion Paper Series 504, Global Labor Organization (GLO).
    3. Chi, Yichun & Zhuang, Sheng Chao, 2022. "Regret-based optimal insurance design," Insurance: Mathematics and Economics, Elsevier, vol. 102(C), pages 22-41.
    4. Chi, Yichun & Zhou, Xun Yu & Zhuang, Sheng Chao, 2024. "Variance insurance contracts," Insurance: Mathematics and Economics, Elsevier, vol. 115(C), pages 62-82.

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