Working Paper: NBER ID: w3007
Authors: Louis Kaplow
Abstract: Government relief is offered for a wide range of risks - - natural disaster, economic dislocation, sickness and injury. This paper explores the effect of such relief on incentives and the allocation of risk in a model with private insurance. It is shown that government relief is inefficient, even when its level is less than the private insurance coverage that individuals would otherwise have purchased and even when private insurance coverage is incomplete due to problems of moral hazard.
Keywords: government relief; incentives; insurance; risk allocation
JEL Codes: D81; H23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government relief (R) (H84) | individual incentives (X) (M52) |
| government relief (R) (H84) | insurance coverage (Q) (G52) |
| exposure to loss (A) (G22) | insurance coverage (Q) (G52) |
| individual incentives (X) (M52) | insurance coverage (Q) (G52) |
| government relief (R) (H84) | exposure to loss (A) (G22) |
| individual incentives (X) (M52) | government relief (R) (H84) |