03 - The role of the state Flashcards
Why might the state intervene in benefit provision?
Redistribution to balance private market inequalities and ensure a minimum standard of living.
To address market failures like behavioral biases, externalities, asymmetric information and imperfect competition.
For efficiency reasons, where public sector provision may be more cost-effective.
Due to external pressure to improve social development or to appease voters.
To address specific concerns such as the nation’s health.
What are the main types of state involvement in benefit provision?
Providing benefits directly through its own agencies or through contributions or taxes.
Education about financial security, healthy lifestyles, and disease prevention.
Compelling benefit provision by private arrangements.
Incentivising voluntary benefit provision by private arrangements.
Regulating private arrangements.
What types of benefits might the state provide?
Retirement benefits.
Healthcare benefits.
Unemployment benefits.
Permanent or temporary disability benefits.
Death and funeral benefits.
Child grants and benefits.
Education.
Housing.
What are the different forms of state benefit provision?
Direct provision of services: The state may own facilities and employ staff.
Reimbursement of private service providers: The state may pay private entities for providing benefits.
Cash payments to individuals: This may be a lump sum or regular payments.
Benefit amount at flat rate: flat-rate benefits may be easier to administer, and may ensure a minimum standard of benefits.
Benefit amount related to an individual’s salary or contributions: These are less redistributive and reflect the individual’s higher financial responsibilities.
What are the pros and cons of means-tested benefits?
Means-tested benefits are benefits provided only to individuals who meet certain income or asset criteria.
Advantages include potentially being more cost-effective by directing resources to those in need, being redistributive by taking from the wealthy to provide benefits to the poor, and it may encourage saving by those who do not pass the test.
However, there are disadvantages. These programs might create a poverty trap, discourage individuals from working or saving, be perceived as unfair, carry administrative cost for verifying eligibility, and be degrading by creating stigma for those receiving them. Means-tested benefits often also have lower take-up rates as many eligible people may not claim them.
What are some state objectives when managing and financing benefits?
Meeting needs, providing financial security, and targeting benefits at the needy.
Cost control and ensuring sustainability.
Meeting the needs of the recipients.
Simplicity of administration.
How can state benefits be financed?
Through taxation.
Compulsory earmarked contributions.
Voluntary contributions to a national benefit arrangement.
What are the advantages and disadvantages of the state providing healthcare through its own facilities versus using the commercial healthcare system?
When a state provides healthcare through its own establishments, it maintains greater control over costs and quality of care, and is less beholden to private interests. However, when utilizing the commercial healthcare system, the state can benefit from the expertise, experience, and economies of scale that private companies possess. Commercial providers may also be more responsive to consumer needs and more apt to implement innovative technologies.
What are the different models of interplay between state and private sectors in healthcare?
Private arrangements as an optional alternative: the state provides a basic system and private care is optional.
Private arrangements as an optional complement: the state provides a limited benefit and the individual can supplement with private care.
Private arrangements can be a compulsory alternative: The state may only provide healthcare on a means-tested basis, but requires people to have private healthcare if they do not meet income or asset tests.
Private arrangements can be a compulsory complement: everyone may use public facilities, but private insurance is obligatory for some services.
Discuss the different ways that the state can compel benefit provision by the private sector, and the potential drawbacks of compulsion.
The state can mandate participation in private schemes, set minimum contribution levels, or specify minimum benefit levels.
While this can improve market outcomes by ensuring that more people have access to benefits, it may also be viewed as an extra tax, or a constraint on how employers operate their businesses.
Furthermore, employer objectives may not align with those of the state or employees.
How can the state compel benefit provision by the private sector?
Mandating participation in private arrangements.
Setting compulsory minimum contributions.
Setting compulsory minimum benefit levels.
How can the state incentivise voluntary benefit provision?
Financial incentives like tax relief on premiums or contributions.
Behavioural incentives, such as auto-enrolment into benefit schemes.
Other forms of encouragement, such as guarantees on investment returns.
Explain how the state might use behavioral incentives, as opposed to financial incentives, to encourage private benefit provision, and why they may be more effective.
Behavioral incentives, such as auto-enrollment in benefit schemes, use psychological insights to encourage participation, rather than direct financial rewards.
These incentives often rely on inertia to increase enrollment, and can be more cost-effective than financial incentives.
Evidence from economic studies suggests these incentives can be much more effective than financial incentives.
Discuss the challenges that population aging poses for state-provided social security systems, particularly those with an unfunded approach.
Population aging leads to more people receiving benefits for longer periods and fewer people of working age contributing to the system.
In an unfunded (pay-as-you-go) system, this can create an inter-generational transfer that may not be considered socially acceptable.
This will likely require increased contributions or reduced benefits, or the system may become unsustainable.
Explain the concept of a relaxed market-focused environment in the context of benefit provision. What are its advantages and disadvantages?
A relaxed market-focused environment involves minimal state intervention, allowing private providers and insurance companies to compete with little regulation, focusing on letting economic forces take their course.
Advantages include: lower costs for the state, increased competition and efficiency, and encouragement of individual responsibility.
Disadvantages include: lower security of benefits, greater uncertainty for the public, and potential for inequitable outcomes, making it unpopular with the poor or unhealthy.
