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Public and Private Insurance with Costly Transactions

  • Bertola, Giuseppe
  • Koeniger, Winfried

We characterize how public insurance schemes are constrained by hidden financial transactions. When non-exclusive private insurance entails increasing unit transaction costs, public transfers are only partly offset by hidden private transactions, and can influence consumption allocation. We show that efficient transfer schemes should take into account the impact of insurance on unobservable effort and saving choices as well as the relative cost of public and private insurance technologies. We provide suggestive evidence for the empirical relevance of these results by inspecting the cross-country relationship between available indicators of insurance transaction costs and variation in public and private insurance.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8062.

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Date of creation: Oct 2010
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Handle: RePEc:cpr:ceprdp:8062
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  1. Dirk Krueger & Fabrizio Perri, 2009. "Public versus Private Risk Sharing," NBER Working Papers 15582, National Bureau of Economic Research, Inc.
  2. Mikhail Golosov, 2007. "Optimal Taxation With Endogenous Insurance Markets," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 487-534, 05.
  3. Bizer, David S & DeMarzo, Peter M, 1992. "Sequential Banking," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 41-61, February.
  4. Laurence Ales & Pricila Maziero, . "Non-exclusive Dynamic Contracts, Competition, and the Limits of Insurance," GSIA Working Papers 2010-E59, Carnegie Mellon University, Tepper School of Business.
  5. University of Venice & Nicola Pavoni & Piero Gottardi, 2008. "Ramsey Asset Taxation under Asymmetric Information," 2008 Meeting Papers 309, Society for Economic Dynamics.
  6. Sebastian Koehne & Nicola Pavoni & Arpad Abraham, 2010. "On the First-Order Approach in Principal-Agent Models with Hidden Borrowing and Lending," 2010 Meeting Papers 947, Society for Economic Dynamics.
  7. Bisin, Alberto & Gottardi, Piero, 1999. "Competitive Equilibria with Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 87(1), pages 1-48, July.
  8. Árpád Ábrahám & Nicola Pavoni, 2005. "The Efficient Allocation of Consumption under Moral Hazard and Hidden Access to the Credit Market," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 370-381, 04/05.
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