This course is only open to USE Masters students.
The welfare state protects individuals against a variety of risks by providing social security. Traditionally the risks that are covered include sickness, disability, death of a breadwinner and unemployment. Private insurances are less likely to deal with these risks because of incomplete markets, imperfect information or other forms of market failures. In addition, public interventions may be justified on the basis of equity arguments. Over the last couple of years two developments have been taken place which warrant a reorientation of current welfare state design. Firstly, the concept of risks has been broadened to include new, manufactured risks like the reconciliation of work and family life and the risk of having low or obsolete skills. Secondly, the actual design of the public interventions has generated lively debates, especially with regard to the optimal tradeoff between efficiency and equity. Generous social security schemes for example might introduce moral hazard resulting in new inefficiencies and raising costs levels. Taken together, these developments imply a rather fundamental modernization of the public risk management, referring to both the choice of the risks to be managed, as well as in how far and in what ways the financial consequences of certain risks should be covered.
Within this course both developments will be covered. The first part of the course will mainly focus on traditional risks and new ways of public intervention. In the second part also new risks wilt be taken into account. Overall, this course not only aims to deepen the understanding of the public management of traditional risks but is also looking forward how new risks can be dealt with.
At the end of the course the student is able to:
Recognize market failures and the possible role of the government;
Analyse the welfare gains from insurance and savings;
Understand moral hazard of private and public solutions;
Understand the trade-off between equity and efficiency.
Mixture of lectures and tutorials.
Written exam (65%) and paper (35%).