Voluntary Social Insurance ∗

We look at the consequences of allowing social insurance to be voluntary when its coverage can be supplemented in the market. Social insurance pools risks and social contributions are increasing in income, while the market is affected by adverse selection. We claim that making social insurance voluntary does not lead to its collapse since there are always individuals either benefiting from redistribution and/or coverage not available in the market. Also, participation in a voluntary social insurance becomes a signalization of individuals’ type and the market can use this information to design contracts. Therefore low risks’ coverage might be increased and the effects of adverse selection are mitigated. The welfare consequence depends on the status quo. If in the status quo there is no social insurance, then there is a Pareto improvement, and in some cases all are strictly better off. If instead the status quo implements some social coverage, them making it voluntary is done at the cost of less redistribution. JEL classification: H23, H42, H50, D72