Journal of Risk and Uncertainty

, Volume 49, Issue 3, pp 213–234 | Cite as

A general rationale for a governmental role in the relief of large risks

Article

Abstract

The government often provides relief against large risks, such as disasters. A simple, general rationale for this role of government is considered here that applies even when private contracting to share risks is not subject to market imperfections. Specifically, the optimal private sharing of large risks will not result in complete coverage against them. Hence, when such risks eventuate, the marginal utility to individuals of government relief may exceed the marginal value of public goods. Consequently, social welfare may be raised if the government reduces public goods expenditures and directs these freed resources toward individuals who have suffered losses.

Keywords

Government relief Large risks Insurance 

JEL Classifications

D6 D8 K2 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Samuel R. Rosenthal Professor of Law and EconomicsHarvard Law SchoolCambridgeUSA

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