Economic Efficiency and Mixed Public/Private Insurance
Stockholm School of Economics WPS 110
Posted: 5 May 1998
Date Written: March 1996
In this paper we discuss the efficiency properties of insurance markets where supplementary private insurance is allowed to exist together with a compulsory government insurance plan. Our main conclusion, which is contrary to both those of Besley (1989) and Selden (1993), is that in a simple model focusing on the moral hazard problem alone, a mixed system will generally be strictly less efficient than a purely private (competitive) system. We also show that there is a flaw in Selden's (1993) main proposition, which at least in part invalidates his result on the welfare properties of systems of mixed government/private insurance.
JEL Classification: I18, H42
Suggested Citation: Suggested Citation