Social Insurance Flashcards
What is social insurance
govt interventions to provide insurance aganst adverse events, eligiblity is not means-tested (just based on contributions)
Why do individuals value insurance
smooth consumption across states of the world to even utility
adverse selection
why might it cause insurance markets to fail
adverse selection
people know about their risk level than insurer - they don’t know what to charge
moral hazard
self-insurance
how may insurerers respond to adverse selection
pooling equilibrium v separated equilibrium
how might govt address adverse selection?
mandating insurance or publically providing it
What is full insurance and what purpose does it serve?
It is optimal
actuarially fair premium
when premium is set equal to insurer expected payout
What are reasons for govt intervention in insurance markets
redistribution
paternalism (social security)
externalities
administrative costs
adverse selection
what is moral hazard?
when someone takes on more risk when they’re insured
adverse action taken in response to insurance
(having unemployment insurance and thus being riskier)
what is asymmetric information
different level of informatio
may result in adverse selection, market failure
