The Politics of Redistributive Social Insurance

U of London, Economics Working Paper No. 444

30 Pages Posted: 25 Oct 2001

See all articles by Jean Hindriks

Jean Hindriks

University of London - School of Economics and Finance

Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: October 15, 2001

Abstract

This paper analyses the political support for social insurance that includes elements of redistribution when there exists an imperfect private insurance alternative. Individuals differ both in their income and risk. The social insurance is compulsory and charges an income-related contribution with pooling of risks. The private insurance is voluntary and charges a contribution based on individuals. However due to the adverse selection problem, private insurance companies provide only partial insurance. Adopting a non-expected utility model, we show that there is a general majority support for social insurance and that this support is increasing with risk aversion and correlation between risk and income. We also show that a mixed insurance is politically impossible, regardless of the degree of redistribution of social insurance and the joint distribution of risk and income in the population. Lastly, we analyse how the political support for social insurance is affected by any change in its redistributive component and the possibility of using genetic tests.

Keywords: majority rule, social insurance, redistribution, adverse selection.

JEL Classification: H23, H50

Suggested Citation

Hindriks, Jean and De Donder, Philippe, The Politics of Redistributive Social Insurance (October 15, 2001). U of London, Economics Working Paper No. 444, Available at SSRN: https://ssrn.com/abstract=288410 or http://dx.doi.org/10.2139/ssrn.288410

Jean Hindriks (Contact Author)

University of London - School of Economics and Finance ( email )

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HOME PAGE: http://www.dc.eclipse.co.uk/hindriks.html

Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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