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Social insurance and redistribution with moral hazard and adverse selection

Author

Listed:
  • Robin Boadway

    (Queen's University [Kingston])

  • Manuel Leite-Monteiro

    (Universidade Católica Portuguesa - Universidade Catolica Portuguesa)

  • Maurice Marchand

    (UCL - Université Catholique de Louvain)

  • Pierre Pestieau

    (PJSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, Université de Liège)

Abstract

Rochet (1991) showed that with distortionary income taxes, social insurance is a desirable redistributive device when risk and ability are negatively correlated. This finding is re-examined when ex post moral hazard and adverse selection are included, and under different informational assumptions. Individuals can take actions influencing the size of the loss in the event of accident (or ill health). Social insurance can be supplemented by private insurance, but private insurance markets are affected by both adverse selection and moral hazard. We study how equity and efficiency considerations should be traded off in choosing the optimal coverage of social insurance when those features are introduced. The case for social insurance is strongest when the government is well informed about household productivity.

Suggested Citation

  • Robin Boadway & Manuel Leite-Monteiro & Maurice Marchand & Pierre Pestieau, 2006. "Social insurance and redistribution with moral hazard and adverse selection," Post-Print halshs-00754141, HAL.
  • Handle: RePEc:hal:journl:halshs-00754141
    DOI: 10.1111/j.1467-9442.2006.00446.x
    Note: View the original document on HAL open archive server: https://hal-pjse.archives-ouvertes.fr/halshs-00754141
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    References listed on IDEAS

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    1. B. Dahlby, 1981. "Adverse selection and Pareto improvements through compulsory insurance," Public Choice, Springer, vol. 37(3), pages 547-558, January.
    2. Petretto, Alessandro, 1999. "Optimal social health insurance with supplementary private insurance," Journal of Health Economics, Elsevier, vol. 18(6), pages 727-745, December.
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    Citations

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    Cited by:

    1. Cremer, Helmuth & Roeder, Kerstin, 2017. "Social insurance with competitive insurance markets and risk misperception," Journal of Public Economics, Elsevier, vol. 146(C), pages 138-147.
    2. Kifmann, Mathias & Roeder, Kerstin, 2011. "Premium subsidies and social health insurance: Substitutes or complements?," Journal of Health Economics, Elsevier, vol. 30(6), pages 1207-1218.
    3. Anja Deelen, 2005. "Adverse selection in disability insurance; empirical evidence for Dutch firms," CPB Discussion Paper 46, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Raj Chetty & Emmanuel Saez, 2010. "Optimal Taxation and Social Insurance with Endogenous Private Insurance," NBER Chapters,in: Income Taxation, Trans-Atlantic Public Economics Seminar (TAPES), pages 85-114 National Bureau of Economic Research, Inc.
    5. Netzer, Nick & Scheuer, Florian, 2007. "Taxation, insurance, and precautionary labor," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1519-1531, August.
    6. Boone, Jan, 2015. "Basic versus supplementary health insurance: Moral hazard and adverse selection," Journal of Public Economics, Elsevier, vol. 128(C), pages 50-58.
    7. John Leach, 2009. "Income Disparity, Inequity Aversion and the Design of the Healthcare System," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 277-297, June.
    8. Nick Netzer & Florian Scheuer, 2010. "Competitive screening in insurance markets with endogenous wealth heterogeneity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 44(2), pages 187-211, August.
    9. Frederick van der Ploeg & Steven Poelhekke, 2008. "Globalization and the rise of mega-cities in the developing world," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 1(3), pages 477-501.
    10. Susanna Kochskämper, 2012. "Reformdebatten in der Krankenversicherung vor dem Hintergrund des europäischen Binnenmarktes," Otto-Wolff-Institut Discussion Paper Series 02/2012, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.
    11. Yukihiro Nishimura, 2009. "Redistributive taxation and social insurance under adverse selection in the insurance market," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(2), pages 176-197, April.
    12. Brandon Lehr, 2016. "Optimal Social Insurance for Heterogeneous Agents With Private Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(2), pages 301-333, June.
    13. John Leach, 2010. "Ex Post Welfare under Alternative Health Care Systems," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(6), pages 1027-1057, December.
    14. Frederick Van der Ploeg, 2004. "The Welfare State, Redistribution and the Economy, Reciprocal Altruism, Consumer Rivalry and Second Best," CESifo Working Paper Series 1234, CESifo Group Munich.
    15. Alessandro Petretto, 2013. "On the Fuzzy Boundaries between Public and Private in Health-Care Organization and Funding Systems," Rivista di Politica Economica, SIPI Spa, issue 1, pages 327-370, January-M.
    16. Yiqing Xing & Anqi Li, 2014. "Simple Labor Income Tax Systems with Endogenous Employment Contracts," 2014 Meeting Papers 866, Society for Economic Dynamics.
    17. Janet Currie & Firouz Gahvari, 2008. "Transfers in Cash and In-Kind: Theory Meets the Data," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 333-383, June.

    More about this item

    JEL classification:

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

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