Policy-oriented parties and the choice between social and private insurance

Philippe De Donder and Jean Hindriks

No 2003064, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We study the political economy of social insurance in a world where individuals differ in both income and risk. Social insurance is financed through distortionary taxation and redistributes across income and risk. Individuals vote on social insurance which they can complement with insurance bought on the private market. Private insurance is actuarially fair but suffers from adverse selection which results in a screening equilibrium with partial coverage. The equilibrium social insurance is the result of bi-partisan electoral competition game where parties maximize the utility of their members. We calculate the equilibrium social insurance offered by the two parties as well as their equilibrium membership, and study how the equilibrium outcome is affected by electoral uncertainty, distortions from taxation, risk aversion and the distribution of risk and income. We then calibrate the model to US data from the PSID survey. Lastly, we study how the political demand for social insurance is affected by the possibility to redistribute through income taxation.

Keywords: political economy; social insurance; redistribution; adverse selection (search for similar items in EconPapers)
JEL-codes: H23 H50 (search for similar items in EconPapers)
Date: 2003-09
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://sites.uclouvain.be/core/publications/coredp/coredp2003.html (text/html)

Related works:
Working Paper: Policy-oriented Parties and the Choice Between Social and Private Insurance (2005)
Working Paper: Policy-Oriented Parties and the Choice between Social and Private Insurance (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2003064

Access Statistics for this paper

More papers in LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Alain GILLIS ().