ECONOMIC-EFFICIENCY AND MIXED PUBLIC PRIVATE INSURANCE/

In this paper we discuss the efficiency properties of insurance market s where supplementary private insurance is allowed to exist together w ith a compulsory government insurance plan. Our main conclusion, which is contrary to both those of Besley (1989) and Selden (1993), is that in a simple model focusing on the moral hazard problem alone, a mixed system will generally be strictly less efficient than a purely privat e (competitive) system. We also show that Selden's (1993) main proposi tion is valid only in very special circumstances, which reduces the si gnificance of his result on the welfare properties of systems of mixed government/private insurance. (C) 1997 Elsevier Science S.A.