Privatization of social insurance and welfare state efficiency: Evidence from the Netherlands and the United States

This chapter presents a simple framework for the efficiency analysis of mandatory social insurance. It shows that the net gain from social insurance hinges not only on the certainty that it can provide where private insurance markets fail, but also on the incentive structure implied by the administrative design and its impact on the size of the moral hazard component. The chapter examines the latest policy measures that were taken to curb spending on sickness and disability benefits in the Netherlands within this framework. It describes the importance of institutional design is further illustrated in a discussion of divergent experiences in the delivery of Workers&s; Compensation in the United States. Distinctive from most other social insurance programs in the United States, workers&s; compensation programs are operated at the state rather than at the federal level. Several general characteristics of workers&s; compensation markets strike European observers as pertinent to the privatization discussion.