Social insurance and redistribution with moral hazard and adverse selection

Robin Boadway (), LEITE-MONTEIRO, Manuel, Maurice MARCHAND and Pierre PESTIEAU

No 2004083, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Rochet (1989) showed that with distortionary income taxes, social insurance is a desirable redistributive device when risk and ability are negatively correlated. This finding is reexamined 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.

Keywords: social insurance; redistribution; market failures (search for similar items in EconPapers)
JEL-codes: H23 H51 (search for similar items in EconPapers)
Date: 2004-12-01
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Related works:
Working Paper: Social Insurance and Redistribution with Moral Hazard and Adverse Selection (2004)
Journal Article: Social Insurance and Redistribution with Moral Hazard and Adverse Selection (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:cor:louvco:2004083

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