Incentives and Government Relief for Risk
13 Pages Posted: 14 Apr 2007 Last revised: 21 Sep 2010
Date Written: June 1989
Government relief is offered for a wide range of risks - - natural disaster, economic dislocation, sickness and injury. This paper explores the effect of such relief on incentives and the allocation of risk in a model with private insurance. It is shown that government relief is inefficient, even when its level is less than the private insurance coverage that individuals would otherwise have purchased and even when private insurance coverage is incomplete due to problems of moral hazard.
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