Abstract
This chapter deals with social insurance (also called social security especially in the United States) and its interaction with private insurance (PI). After a short survey of the importance of social insurance (SI) in Sect. 9.1, the question of why there should be SI is raised in Sect. 9.2 (after all, there is no social banking!). In view of the fact that in the domain of personal insurance, SI has a volume of contributions that is several times as high as that of PI (see Table 9.1 below), this question may appear to be a moot point. Very often, market failure of PI is cited as a possible reason for the existence of SI. The problem is only that the rapid growth of SI would have to be explained with reference to market failures becoming more acute over time. This points to another explanation of SI, namely as a tool in the hands of political decision makers.
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- 1.
This concern contradicts the one described in Sect. 9.2.1.3, stating that due to the asymmetry of information a negative externality emanates from the high risks, burdening the low ones.
- 2.
This argument is a modification of the model by Newhouse (1996)).
- 3.
Contrary to Fig. 9.4, a very risk-averse individual may opt for the minimum variance portfolio of SI, which may dominate the minimum variance portfolio of PI.
- 4.
In Europe, universal life insurance is a prevalent. It offers a capital paid in the case of premature death but also in the case of surviving to a certain age (62, say). However, benefits for premature death have to be paid earlier on average, causing them to have higher present value than the capital benefit. Therefore, the IC values high life expectancy positively for this type of contract.
- 5.
Note that risk aversion is not relevant here because there is no risk involved (the state of sickness obtains with certainty). Therefore, the argument in favor of ∂ 2 U ∕ ∂M∂y is not in contradiction to the analysis of Sect. 3.2.2, which is in terms of risky wealth.
- 6.
Basing this estimate directly on the regression coefficient neglects the fact that the log transformation (resulting in lnWAGE) constitutes a non-linear transformation causing a problem of retransformation (for details see Kennedy (1986)].
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© 2012 Springer-Verlag Berlin Heidelberg
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Zweifel, P., Eisen, R. (2012). Social Insurance. In: Insurance Economics. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-20548-4_9
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DOI: https://doi.org/10.1007/978-3-642-20548-4_9
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