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Economic efficiency and mixed public/private insurance

  • Blomqvist, A.
  • Johansson, P-O.

In this paper we discuss the efficiency properties of insurance markets where supplementary private insurance is allowed to exist together with a compulsory government insurance plan. Our main conclusion, which is contrary to both those of Besley (1989) and Selden (1993), is that in a simple model focussing on the moral hazard problem alone, a mixed system will generally be strictly less efficient than a purely private (competitive) system. We also show that there is a flaw in Selden's (1993) main proposition, which at least in part invalidates his result on the welfare properties of systems of mixed government/private insurance.

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File URL: http://www.sciencedirect.com/science/article/B6V76-3T528W4-8/2/ebaeab6c9e93271c125d6833088e46ee
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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 66 (1997)
Issue (Month): 3 (December)
Pages: 505-516

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Handle: RePEc:eee:pubeco:v:66:y:1997:i:3:p:505-516
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Blomqvist, Ake, 1997. "Optimal non-linear health insurance," Journal of Health Economics, Elsevier, vol. 16(3), pages 303-321, June.
  2. Zeckhauser, Richard, 1970. "Medical insurance: A case study of the tradeoff between risk spreading and appropriate incentives," Journal of Economic Theory, Elsevier, vol. 2(1), pages 10-26, March.
  3. Pauly, Mark V, 1986. "Taxation, Health Insurance, and Market Failure in the Medical Economy," Journal of Economic Literature, American Economic Association, vol. 24(2), pages 629-75, June.
  4. Besley, Timothy, 1989. "Publicly provided disaster insurance for health and the control of moral hazard," Journal of Public Economics, Elsevier, vol. 39(2), pages 141-156, July.
  5. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 44-62, February.
  6. Selden, Thomas M., 1993. "Should the government provide catastrophic insurance?," Journal of Public Economics, Elsevier, vol. 51(2), pages 241-247, June.
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