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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 incom- pleteness 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.

Suggested Citation

  • Teh, Tse-Ling, 2017. "Insurance design in the presence of safety nets," LSE Research Online Documents on Economics 69870, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:69870
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    File URL: http://eprints.lse.ac.uk/69870/
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    Cited by:

    1. Yichun Chi & Xun Yu Zhou & Sheng Chao Zhuang, 2020. "Variance Contracts," Papers 2008.07103, arXiv.org.
    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.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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