Public versus Private Insurance with Non-Expected Utility: A Political Economy Argument
Jean Hindriks ()
No 439, Working Papers from Queen Mary University of London, School of Economics and Finance
This paper analyzes the political support for public insurance in the presence of a private insurance alternative. The public insurance is compulsory and offers a uniform insurance policy. The private insurance is voluntary and can offer different insurance policies. Adopting Yaari's (1987) dual theory to expected utility (i.e., risk aversion without diminishing marginal utility of income), we show that adverse selection on the private insurance market may lead a majority of individuals to prefer public insurance over private insurance, even if the median risk is below the average risk (so that the median actually subsidizes high-risk individuals). We also show that risk aversion makes public insurance more attractive and that the dual theory is less favourable to a mixed insurance system than the expected utility framework. Lastly, we demonstrate how the use of genetic tests may threaten the political viability of public insurance.
Keywords: Voting; Insurance; Adverse selection (search for similar items in EconPapers)
JEL-codes: H23 H51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-ias, nep-mic, nep-pbe, nep-pol, nep-pub and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:wp439
Access Statistics for this paper
More papers in Working Papers from Queen Mary University of London, School of Economics and Finance Contact information at EDIRC.
Bibliographic data for series maintained by Nicholas Owen ().