SSE/EFI Working Paper Series in Economics and Finance
No 409:
A median voter model of health insurance with ex post moral hazard
Johanna Jacob and Douglas Lundin
Abstract: One of the main features of health insurance is moral
hazard, as defined by Pauly (1968); people face incentives for excess
utilization of medical care since they do not pay the full marginal cost
for provision. To mitigate the moral hazard problem, a coinsurance can be
included in the insurance contract.
We analyze under what conditions
there is a conflict between individuals on what coinsurance rate should be
set with public health insurance, and we establish conditions for a
median-voter equilibrium. Then we allow the public insurance to be
supplemented with private insurance, and we establish conditions under
which public provision will lead to larger aggregate spending than private
provision does.
Keywords: health insurance; moral hazard; public provision; median voter; (follow links to similar papers)
JEL-Codes: H42; I18; (follow links to similar papers)
35 pages, October 31, 2000
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