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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 110:
Economic Efficiency and Mixed Public/Private Insurance

Ake Blomqvist and Per-Olov Johansson ()

Abstract: 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 focussing 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.

Keywords: Health insurance; moral hazard; optimal insurance; government insurance; (follow links to similar papers)

JEL-Codes: I18; H42; (follow links to similar papers)

16 pages, March 1996

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This paper is published as:
Blomqvist, Ake and Per-Olov Johansson, (1997), 'Economic Efficiency and Mixed Public/Private Insurance', Journal of Public Economics, Vol. 66, pages 505-516



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