Public and Private Insurance with Costly Transactions

34 Pages Posted: 4 Oct 2010

See all articles by Giuseppe Bertola

Giuseppe Bertola

University of Turin - Department of Economics

Winfried Koeniger

University of St. Gallen; CESifo (Center for Economic Studies and Ifo Institute); Center for Financial Studies (CFS); IZA Institute of Labor Economics; Swiss Finance Institute

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Abstract

We characterize how public insurance schemes are constrained by hidden financial transactions. When non-exclusive private insurance entails increasing unit transaction costs, public transfers are only partly offset by hidden private transactions, and can influence consumption allocation. We show that efficient transfer schemes should take into account the impact of insurance on unobservable effort and saving choices as well as the relative cost of public and private insurance technologies. We provide suggestive evidence for the empirical relevance of these results by inspecting the cross-country relationship between available indicators of insurance transaction costs and variation in public and private insurance.

Keywords: public transfers, private insurance, moral hazard, transaction costs

JEL Classification: E21, D82, H21, G22

Suggested Citation

Bertola, Giuseppe and Koeniger, Winfried, Public and Private Insurance with Costly Transactions. IZA Discussion Paper No. 5201, Available at SSRN: https://ssrn.com/abstract=1686492 or http://dx.doi.org/10.2139/ssrn.1686492

Giuseppe Bertola (Contact Author)

University of Turin - Department of Economics ( email )

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Winfried Koeniger

University of St. Gallen ( email )

Swiss Institute for Empirical Economic Research
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CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Center for Financial Studies (CFS) ( email )

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IZA Institute of Labor Economics ( email )

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Swiss Finance Institute ( email )

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