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Public versus private insurance: a political economy argument

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  • HINDRIKS, Jean

Abstract

This paper analyzes the political support for a 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 to different individual risks. We show that adverse selection on the private insurance market can lead a majority of individuals to prefer public insurance over private insurance, even if the median risk is below theaverage risk (so that the median ends upsubsidizing high-risk individuals). We also show that more risk aversion always leads to a greater political support for public insurance and that a mixture of public and private insurance is politically non sustainable. Lastly, we demonstrate how progressively more powerful information technology may help the private insurance market to mitigate the adverse selection problem and reduce the demand for public insurance threatening its political sustainability.

Suggested Citation

  • HINDRIKS, Jean, 2000. "Public versus private insurance: a political economy argument," LIDAM Discussion Papers CORE 2000058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2000058
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    References listed on IDEAS

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    More about this item

    Keywords

    voting; insurance; adverse selection.;
    All these keywords.

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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