Economics of the Welfare State
Assignment 2: Social insurance debate
Introduction
Opinions about social insurance differ greatly. Given differences of opinion are mainly ideological,
economics cannot resolve them. However, economics can help inform and structure the discourse
on social insurance policy by distinguishing between equity and efficiency objectives, separating
legitimate from illegitimate reasons for state intervention in pursuit of each objective and by
identifying how the state may intervene in the finance, regulation and provision of insurance
against risks related to earnings, longevity and health care to achieve the best trade-off between
equity and efficiency.
In the week 5 tutorials you have the opportunity to draw on the economics of insurance to debate
important issues in social welfare policy. The eight resolutions below relate to topics discussed in
lectures 2-5. Each expresses a normative position. It cannot be proved right or wrong. Agreement
or disagreement involves making value judgements. Hence, you cannot use the lecture material
to find the correct answer. But you can use it to formulate an argument, or to criticize the argument
of the opposing team. The purpose of the debate is not only to improve your understanding of the
economics of insurance by putting it into practice, but also to help you develop important general
skills of argumentation and communication. Besides improving your human capital, we hope that
you will also have fun!
Resolutions:
1) Politics, not economics, provides a better explanation of what the welfare state does,
which is to redistribute between groups of individuals (from the rich to the poor, the young
to the old, the healthy to the sick), not to insure individuals against risks.
2) The economic efficiency argument for social insurance is bogus. This is not because the
market could provide actuarially fair insurance but because the majority of us are risk
seekers and would not purchase such insurance.
3) The adverse selection argument for social insurance is outdated. In the era of Big Data,
private insurance companies know more about our risks of becoming unemployed,
disabled and sick than we do.
4) Adverse selection is a spurious argument for social insurance. In unregulated markets,
selection tends to be advantageous – low risks insure more than high risks.
5) Social insurance is simply poorly disguised taxation. At best, it is motivated by paternalism.
At worst, it is an instrument of a rapacious state. It is certainly not an efficient way of
protecting us from risks.
6) If social insurance improved our welfare, there would be no need to make it compulsory.
7) Replacing social insurance with private insurance and means-tested subsidies for the poor
would improve efficiency and equity. It would stop redistribution toward the rich who live
(and claim public pensions) longer and the wealthy elderly who use more (public) health
care.
8) The argument for social insurance as an efficient response to moral hazard is doubly
flawed. First, moral hazard is a greatly exaggerated problem. No one chooses to become
unemployed, disabled or sick. Second, to the extent that the problem exists, the state is
as vulnerable to it as private insurance companies.
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Roles
For each resolution, a proposition and an opposition team is assigned. The resolutions to be
debated within each tutorial session and the team assignments are posted simultaneous to this
document on Canvas. Check the excel file “Propositions Assignment 2”.
The proposition team argues in support of the resolution. The opposition argues against. No
matter whether you personally agree or disagree with the resolution, you must take the side in
the argument that you are assigned.
Homework before the tutorial: Prepare argument and collect evidence
Prior to the tutorial, your team should work together to assemble your argument, and to prepare
to criticize the argument of the other side. This will involve reading on the topic to identify
arguments that can be made to support the position you have been assigned. Here, you can and
should draw on economics. But it is likely that you will also want to make politically and
ideologically reasoned arguments. You should also collect evidence that can be cited in defense
of your argument or to undermine the position of the other team.
Each group has to write and submit a report on the resolution they have to debate. The report
should be submitted on Canvas before Monday 30 September 11.00 am. In the report your group
must not support the side of the argument it took in the debate. The report should make a more
balanced appraisal of both sides of the argument. You can arrive at a position in favour of one
side of the argument, but this should be after having weighed the arguments and evidence on
both sides. You should draw on the economic analysis and evidence discussed in the lectures,
book and cited papers, and your own research. You can use the questions below to structure your
report. However, please make sure that the report is presented as a coherent, flowing unified text,
and not a series of answers to distinct questions.
1. Interpretation of the resolution: (max. 200 words)
a. What is being proposed?
b. Examples of policies or what it would mean in practice?
2. Analysis of resolution (max. 600 words)
- Is any supposed factual statement in the resolution, e.g. a majority of us are risk
seekers, correct? What is the evidence?
- What value judgements are implied by the resolution? What objectives are being given
most weight (equity vs liberty vs efficiency)?
- Can economic analysis be used to support the resolution?
- Can economic analysis be used to oppose the resolution?
- Is there evidence to support arguments that may be made in support?
3. Critique of the resolution (max. 400 words)
a. What would be the advantages/disadvantages of adopting the resolution and
resulting policy?
b. What objectives would be sacrificed?
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The tutorial: Act according to the rules
During the tutorial the Opposition and Proposition teams will take position facing each other. The
other teams are seated around the Opposition and Proposition teams in such a way that they can
hear and observe the speakers (see Figure 1). Once everybody is seated, the teacher, who will
assume the role of Chair, will show the resolution on the screen and will ask a member of the
Proposition to start the debate by speaking for 5 minutes in support of the resolution. The speaker
is not allowed to read out sentences. Marks will be deducted for reading, except if the speaker is
quoting directly from a source. The Opposition team may interrupt with a Point of Information but
only after having requested and been granted permission from the Chair. This should be phrased
as a very short question. The receiving speaker can make a short answer, or ignore the question.
Then, the Chair will invite a member of the Opposition to argue against the resolution for 5 minutes
following the same rules as for the Proposition.
The Chair will then invite any member of the Proposition (other than the initial speaker) to make
a point. The point should challenge an argument made by the Opposition. Someone from the
Opposition will then be invited to make a point. Again, it should challenge an argument made by
the other team. This process in which the teacher gives the floor to the proposition and opposition
teams continues till the time is exhausted. Depending on the number of groups there is between
20 and 25 minutes available per debate.
During the debate, the teacher’s task is not only to make sure the discussion goes well, but also
to offer different members of the proposition and opposition teams the chance to talk. An important
rule is that the members of the opposition and proposition teams should raise their hands if they
would like to add something to the discussion – then the teacher will give them a signal when it is
their turn.
It is crucial that the students of the groups that are not in the proposition and opposition teams do
not participate in the debate themselves. Their role is to evaluate the teams that participate in the
debate.
Figure 1: Debate set up
Opposition team *
Proposition team
The teams that have to grade the opposition and proposition teams take notes of the debate
The teams that have to grade the opposition and proposition teams take notes of the debate
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How is your work graded?
The final grade for assignment 3 is determined by the performance of your team during the debate
and by the report written by your team. The performance of your team in the debate is evaluated
by the teacher and your peers. The teams that do not participate in the debate take notes during
the debate in readiness for evaluating the teams. Evaluation will take into account the quality of
the reasoning and evidence given by the teams, how well the teams explained their arguments,
and by checking if a group used all their members in the debate (at least once).
The final grade for assignment 3 is based on the observing students’ evaluation of the team’s
performance in the debate (20%) and the teacher’s evaluation of the team’s performance in the
debate (40%) and the report submitted by the group (40%).
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