A general rationale for a governmental role in the relief of large risks

Steven Shavell ()

Journal of Risk and Uncertainty, 2014, vol. 49, issue 3, 213-234

Abstract: The government often provides relief against large risks, such as disasters. A simple, general rationale for this role of government is considered here that applies even when private contracting to share risks is not subject to market imperfections. Specifically, the optimal private sharing of large risks will not result in complete coverage against them. Hence, when such risks eventuate, the marginal utility to individuals of government relief may exceed the marginal value of public goods. Consequently, social welfare may be raised if the government reduces public goods expenditures and directs these freed resources toward individuals who have suffered losses. Copyright Springer Science+Business Media New York 2014

Keywords: Government relief; Large risks; Insurance; D6; D8; K2 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11166-014-9203-2

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