2 - Theoretical Framework

Summary

Chapter 2 presents the (formal) theoretical framework and advances four arguments. First, whether or not majority support for public provision of insurance exists depends on the distribution of information. Second, some insurance is best provided via pay-as-you-go systems, but these involve a difficult time-inconsistency problem that private markets cannot solve. Some social insurance is therefore bound to remain almost entirely within the purview of the state. Third, people’s preferences regarding social insurance are also a function of the availability of private options. If social insurance is the only game in town, even those subsidizing the system will support it, leading to broad cross-class majorities. With private alternatives, the better-off will lower their support for public spending, which erodes the broad support public social policy programs traditionally enjoy. Fourth, parties continue to matter because they represent different risk groups, and we expect that partisan conflicts will extend into new areas, most importantly the regulation of information and how it may be used.