Why have Social Insurance? If a private firm offers insurance and cannot observe the high risks from the low risks, likely to get a group of buyers that is adverse to its interests Adverse selection- Individual who knows he is especially likely to collect benefits will have an especially high demand for insurance4 Why have Social Insurance? • If a private firm offers insurance and cannot observe the high risks from the low risks, likely to get a group of buyers that is adverse to its interests. • Adverse selection – Individual who knows he is especially likely to collect benefits will have an especially high demand for insurance