Handbook of Public Economics, Vol. 5

Chapter 3

Social Insurance: Connecting Theory to Data

Raj Chetty^*,† and Amy Finkelstein^†,‡,    *Harvard University, ^†NBER, ^‡MIT

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, ...