Protecting the Vulnerable: The Trade-Off between Risk Reduction and Public Insurance

29 Pages Posted: 12 Jul 2004

See all articles by Shantayanan Devarajan

Shantayanan Devarajan

World Bank Middle East and North Africa Region

William Jack

World Bank

Date Written: June 2004

Abstract

In a risky world, should governments provide public goods that reduce risk or compensate the victims of bad outcomes? We examine the allocation of public expenditures in the context of a risky environment between the provision of a public good with risk-reducing characteristics, and the expansion of a tax-financed public insurance system. We allow for the existence of a private insurance market as well, and therefore for the possibility of crowding out by a public insurance scheme. Nevertheless, we find there is scope for substantial spending on insurance, especially as risk aversion and the size of the total budget grows.

Keywords: Social insurance, risk reduction, public expenditure allocation

JEL Classification: H41, H42, I38

Suggested Citation

Devarajan, Shantayanan and Jack, William G., Protecting the Vulnerable: The Trade-Off between Risk Reduction and Public Insurance (June 2004). Available at SSRN: https://ssrn.com/abstract=563266 or http://dx.doi.org/10.2139/ssrn.563266

Shantayanan Devarajan

World Bank Middle East and North Africa Region ( email )

1818 H Street, NW
Washington, DC 20433
United States

William G. Jack (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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