ABSTRACT
This chapter focuses on the process of production of social security rather then on the size of social welfare produced and addresses the issue of the potential for the privatization of social security provision. The welfare state refers to only part of the government interventions. Although the concept of the welfare state is not sharply defined in the literature, it usually encompasses at least all those government interventions that provide coverage for the risk of income losses due to unemployment, sickness, disability and old age as well as the risk of medical expenses. The solution to the aggregate risk problem may be found in the introduction of elements of tax funding in social security financing. This way the aggregate risks can be pooled over all people at risk. Government intervention of will be required although the extent and type of intervention varies over the specific risks.
