Social insurance and redistribution with moral hazard and adverse selection

Robin Boadway*, Manuel Leite-Monteiro, Maurice Marchand, Pierre Pestieau

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

18 Citations (Scopus)


Rochet (1991) showed that with distortionary income taxes, social insurance is a desirable redistributive device when risk and ability are negatively correlated. This finding is re-examined when ex post moral hazard and adverse selection are included, and under different informational assumptions. Individuals can take actions influencing the size of the loss in the event of accident (or ill health). Social insurance can be supplemented by private insurance, but private insurance markets are affected by both adverse selection and moral hazard. We study how equity and efficiency considerations should be traded off in choosing the optimal coverage of social insurance when those features are introduced. The case for social insurance is strongest when the government is well informed about household productivity.

Original languageEnglish
Pages (from-to)279-298
Number of pages20
JournalScandinavian Journal of Economics
Issue number2
Publication statusPublished - Jul 2006


  • Market failures
  • Redistribution
  • Social insurance


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