NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Incentives and Government Relief for Risk

Louis Kaplow

NBER Working Paper No. 3007 (Also Reprint No. r1587)*
Issued in August 1991
NBER Program(s):   PE

Government relief is offered for a wide range of risks - - natural

disaster, economic dislocation, sickness and injury. This paper explores the

effect of such relief on incentives and the allocation of risk in a model

with private insurance. It is shown that government relief is inefficient,

even when its level is less than the private insurance coverage that

individuals would otherwise have purchased and even when private insurance

coverage is incomplete due to problems of moral hazard.

*Published: Journal of Risk and Uncertainty, Vol. 4, No. 2, pp. 167-175, (1991).

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