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Public Versus Private Insurance with Dual Theory: A Political Economy Argument

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  • Jean Hindriks

    (Economics Department, Queen Mary, University of London, Mile End Road, London E1 4NS, England, e-mail: j.hindriks@qmw.ac.uk)

Abstract

This paper analyzes the political support for public insurance in the presence of a private insurance alternative. The public insurance is compulsory and offers a uniform insurance policy. The private insurance is voluntary and can offer different insurance policies. Adopting Yaari's [Econometrica, 55, 95–115, 1987] dual theory to expected utility (i.e., risk aversion without diminishing marginal utility of income), we show that adverse selection on the private insurance market may lead a majority of individuals to prefer public insurance over private insurance, even if the median risk is below the average risk (so that the median actually subsidizes high-risk individuals). We also show that risk aversion makes public insurance more attractive and that the dual theory is less favourable to a mixed insurance system than the expected utility framework. Lastly, we demonstrate how the use of genetic tests may threaten the political viability of public insurance. The Geneva Papers on Risk and Insurance Theory (2001) 26, 225–241. doi:10.1023/A:1015289903491

Suggested Citation

  • Jean Hindriks, 2001. "Public Versus Private Insurance with Dual Theory: A Political Economy Argument," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 26(3), pages 225-241, December.
    • Handle: RePEc:pal:genrir:v:26:y:2001:i:3:p:225-241
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    Cited by:

    1. Kazuhiko Sakai & Mahito Okura, 2012. "An Economic Analysis of Compulsory and Voluntary Insurance," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(2), pages 1-8, April.
    2. Rossignol, Stéphane, 2008. "Politics of social health insurance," European Journal of Political Economy, Elsevier, vol. 24(2), pages 387-401, June.
    3. Okura Mahito & Sakaki Motohiro & Yoshizawa Takuya, 2021. "Should Liability Insurance Be Compulsory for Bicycle Accidents?," Asian Journal of Law and Economics, De Gruyter, vol. 12(1), pages 19-35, April.
    4. repec:ebl:ecbull:v:4:y:2008:i:18:p:1-8 is not listed on IDEAS
    5. Peilu Zhang & Marco A. Palma, 2021. "Compulsory Versus Voluntary Insurance: An Online Experiment," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(1), pages 106-125, January.
    6. Tim Friehe, 2008. "Insurance, Pooling, and Resistance to Reform: The Case of Individual Uncertainty," Economics Bulletin, AccessEcon, vol. 4(18), pages 1-8.

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