In two recent papers, Nyman raised some questions
about the welfare calculations and conclusions in an earlier paper. Some of
those criticisms are erroneous. First, although the earlier paper estimated a
Marshallian demand curve, its calculations are based on compensating variations
that incorporate the gains from risk pooling. Second, its estimates of second
best insurance plans indicate that some cost sharing is optimal, in
contradiction to Nyman's assertion that its results raise questions about the
desirability of insurance coverage. Other issues raised by Nyman also deserve
comment.
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