Social Insurance: Connecting Theory to Data

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Social Insurance: Connecting Theory to Data

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Title: Social Insurance: Connecting Theory to Data
Author: Chetty, Nadarajan; Finkelstein, Amy Nadya

Note: Order does not necessarily reflect citation order of authors.

Citation: Chetty, Raj, and Amy Finkelstein. 2013. “Social Insurance: Connecting Theory to Data.” Handbook of Public Economics: 111–193. doi:10.1016/b978-0-444-53759-1.00003-0.
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Abstract: We survey the literature on social insurance, focusing on recent work that has connected theory to evidence to make quantitative statements about welfare and optimal policy. Our review contains two parts. We first discuss motives for government intervention in private insurance markets, focusing primarily on selection. We review the original theoretical arguments for government intervention in the presence of adverse selection, and describe how recent work has refined and challenged the conclusions drawn from early theoretical models. We then describe empirical work that tests for selection in insurance markets, documents the welfare costs of this selection, and analyzes the welfare consequences of potential public policy interventions. In the second part of the paper, we review work on optimal social insurance policies. We discuss formulas for the optimal level of insurance benefits in terms of empirically estimable parameters. We then consider the consequences of relaxing the key assumptions underlying these formulas, e.g., by allowing for fiscal externalities or behavioral biases. We also summarize recent work on other dimensions of optimal policy, including mandated savings accounts and the optimal path of benefits. Finally, we discuss the key challenges that remain in understanding the optimal design of social insurance policies.
Published Version: doi:10.1016/B978-0-444-53759-1.00003-0
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at
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