Social Protection and Private Insurance: Reassessing the Role of Public Sector Versus Private Sector in Insurance

This paper first discusses the standard reasons why private insurance cannot be expected to function well and why public intervention in or public provision of insurance can improve on private market outcomes. These arguments are based on efficiency but also on equity considerations. Then the paper turns to new developments in modern societies that might affect the balance between social and private insurance. They pertain to the current working of labor markets, to the openness of our economies and the ensuing fiscal competition, and to the crediblity and commitment problems faced by the state. The paper concludes that the public sector will find it less and less affordable to provide both insurance and assistance and recommends that it focus on the latter objective by awarding tax-financed uniform benefits on the basis of specified contingencies. The Geneva Papers on Risk and Insurance Theory (1994) 19, 81–92. doi:10.1007/BF01371684