Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 110: Economic Efficiency and Mixed Public/Private Insurance

Ake Blomqvist and Per-Olov Johansson ()
Additional contact information
Ake Blomqvist: Department of Economics, Postal: University of Western Ontario, London, Ontario N6A 5C2
Per-Olov Johansson: Centre for Health Economics, Postal: Stockholm School of Economics, Box 6501, S-113 83 STOCKHOLM, SWEDEN

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

JEL-codes: I18; H42

16 pages, March 1996

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