Working Paper: CEPR ID: DP4253
Authors: Robin Boadway; Manuel Leite-Monteiro; Maurice G. Marchand; Pierre Pestieau
Abstract: This Paper starts from the result of Rochet (1989), 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. The main purpose of the present Paper is to study how equity and efficiency considerations should be traded off in choosing the optimal coverage of social insurance when those features are introduced.
Keywords: market failures; redistribution; social insurance
JEL Codes: H23; H51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| social insurance (H55) | redistribution (H23) |
| moral hazard (G52) | desirability of social insurance (G52) |
| adverse selection (D82) | effectiveness of private insurance markets (G52) |
| adverse selection (D82) | necessity and design of social insurance policies (H55) |
| government's information about household productivity and risk (E24) | effectiveness of social insurance (H55) |