Choice in Insurance Markets: A Pigouvian Approach to Social Insurance Design

Should choice be offered in social insurance programs? This review presents a conceptual framework that identifies the key forces determining value of offering choice. We show is higher larger variation individual valuations for extra is, but it gets reduced by both selection on risk and moral hazard. Besides adverse selection, implementation choice-based policies further challenged presence frictions or obligation to offer basic uncompensated care. All these inefficiencies can seen as externalities do not rationalize absence providing per se point need regulatory suggest potential corrective pricing à la Pigou. Applying this existing evidence context unemployment insurance, we find valuable even significant selection. conclude showing how constitute fruitful guide empirical research different domains.