Abstract
Chapter 20 is the first of two chapters on social insurance using health insurance as the example throughout. The chapter begins with an analysis of the demand for health insurance, and then turns to the problems of moral hazard and adverse selection that are derived from private or asymmetric information. Featured are Pauly’s analysis of moral hazard, the Cutler and Einav and Finkelstein analyses of adverse selection, and the Rothschild and Stiglitz demonstration that the market for health insurance might not have an equilibrium depending on how information flows among the insured and the insurance companies. The chapter concludes with a discussion of the U.S. Patient Protection and Affordable Care Act (Obamacare).
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