文档介绍：Chapter 9 – Social Insurance I: Social Security and Unemployment Insurance
Public Economics
1
Social Insurance Programs
Generally share 4 characteristics:
Participation is mandatory
Eligibility and benefits depend on prior contributions
Benefits begin with an identifiable occurrence
Programs are not means-tested
2
Why have Social Insurance?
Recall that the First Welfare Theorem concluded that private markets generally work well.
One critical difference in insurance markets is asymmetric information – one party has information that is not available to the other party.
3
Why have Social Insurance?
If a private firm offers insurance and cannot observe the high risks from the low risks, likely to get a group of buyers that is adverse to its interests.
Adverse selection – Individual who knows he is especially likely to collect benefits will have an especially high demand for insurance.
4
Why have Social Insurance?
In a petitive insurance market, expected profits will be driven down to $0.
Adverse selection could lead to insurance plans losing money, and raising the premiums only exacerbates the adverse selection problem.
5
Why have Social Insurance?
How can government intervention improve efficiency?
Social insurance programs pulsory: the adverse selection problem is avoided because the low risks are forced to purchase the insurance policy as well.
In the private market, the low risks would be less likely than the high risks to purchase the insurance policy.
6
Why have Social Insurance?
Other justifications
Lack of Foresight / Paternalism
For example, some individuals do a poor job of planning for their retirement.
Moral Hazard
“Gaming the system”
Economize on Decision-making costs
e distribution
7
Structure of Social Security
Many details of Social Security laid out in the following slides.
One motivation for presenting these details is that virtually all college students are affect by Social Security, thus, it is important to understand the detail