Comments on: The economics of ad hoc government http://www.students4freedom.com/index.php/2008/12/05/the-economics-of-ad-hoc-government/ National organisation for the promotion of liberty and libertarianism to students Thu, 09 Sep 2010 05:48:23 +0000 http://wordpress.org/?v=2.6.2 By: Hugo http://www.students4freedom.com/index.php/2008/12/05/the-economics-of-ad-hoc-government/#comment-1151 Hugo Sun, 22 Nov 2009 15:38:32 +0000 http://www.students4freedom.com/?p=349#comment-1151 'Knowledge in the health insurance market, he says, would eliminate the market and make everyone worse off. My answer was pretty obvious before he’d even finished: “The insurer might be worse off, but it’ll be a damn sight better for the guy that finds out he’s going to get cancer to spend his money on going to a doctor, rather than going to an insurer.”' Yes, eliminating insurance markets by giving everyone perfect information would result in a net increase in efficiency and wealth, because the layer of inefficiency of the insurance market would be eliminated, and all those people who knew for certain that they wouldn't get cancer would not buy insurance. They'd be better off. But that's missing the point. The guy who finds out he's going to get cancer would be worse off, because instead of spending £50/month on health insurance, he'd have to spend thousands on treatment himself. The same applies to house insurance, disaster insurance, etc. Regarding additional information that does not allow us to prevent a disaster -- e.g. if you knew your ship would sink in this storm, you wouldn't go out, but if you know you're going to get cancer, there's not much you can do about it -- I can't help but think a world with insurance markets is better than one in which the full burden of disasters fall on small individuals rather than spread over a (free, consentual) insurance market. ‘Knowledge in the health insurance market, he says, would eliminate the market and make everyone worse off. My answer was pretty obvious before he’d even finished: “The insurer might be worse off, but it’ll be a damn sight better for the guy that finds out he’s going to get cancer to spend his money on going to a doctor, rather than going to an insurer.”’

Yes, eliminating insurance markets by giving everyone perfect information would result in a net increase in efficiency and wealth, because the layer of inefficiency of the insurance market would be eliminated, and all those people who knew for certain that they wouldn’t get cancer would not buy insurance. They’d be better off.

But that’s missing the point. The guy who finds out he’s going to get cancer would be worse off, because instead of spending £50/month on health insurance, he’d have to spend thousands on treatment himself.

The same applies to house insurance, disaster insurance, etc. Regarding additional information that does not allow us to prevent a disaster — e.g. if you knew your ship would sink in this storm, you wouldn’t go out, but if you know you’re going to get cancer, there’s not much you can do about it — I can’t help but think a world with insurance markets is better than one in which the full burden of disasters fall on small individuals rather than spread over a (free, consentual) insurance market.

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