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An Empirical Examination of Information Barriers to Trade in Insurance

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Author Info
John Cawley
Tomas Philipson

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Abstract

This paper uses direct evidence to evaluate whether asymmetric information is a barrier to trade in the largest market for private insurance in the world: life insurance. We report several findings that seem difficult to reconcile with the conventional theory of insurance under asymmetric information. We conjecture that sellers may know their costs of production better than consumers in this market, as in those for most other products.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 89 (1999)
Issue (Month): 4 (September)
Pages: 827-846
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Handle: RePEc:aea:aecrev:v:89:y:1999:i:4:p:827-846

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bond, Eric W & Crocker, Keith J, 1991. "Smoking, Skydiving, and Knitting: The Endogenous Categorization of Risks in Insurance Markets with Asymmetric Information," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 177-200, February. [Downloadable!] (restricted)
  2. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May. [Downloadable!] (restricted)
  3. Tomas J. Philipson & Gary S. Becker, 1998. "Old-Age Longevity and Mortality-Contingent Claims," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 551-573, June. [Downloadable!] (restricted)
  4. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August. [Downloadable!] (restricted)
  5. Russell Cooper, 1983. "On Allocative Distortions in Problems of Self-Selection," Cowles Foundation Discussion Papers 647R, Cowles Foundation, Yale University. [Downloadable!]
  6. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  7. Genesove, David, 1993. "Adverse Selection in the Wholesale Used Car Market," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 644-65, August. [Downloadable!] (restricted)
  8. Friedman, Benjamin M & Warshawsky, Mark J, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 135-54, February. [Downloadable!] (restricted)
  9. John Cawley & Tomas Philipson, 1997. "An Empirical Examination of Information Barriers to Trade inInsurance," University of Chicago - George G. Stigler Center for Study of Economy and State 132, Chicago - Center for Study of Economy and State.
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  10. Russell Cooper, 1984. "On Allocative Distortions in Problems of Self-Selection," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 568-577, Winter. [Downloadable!] (restricted)
  11. Benjamin M. Friedman & Mark Warshawsky, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," NBER Working Papers 1682, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-59, March. [Downloadable!] (restricted)
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  13. Townsend, Robert M., 1988. "Information constrained insurance : The revelation principle extended," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 411-450. [Downloadable!] (restricted)
  14. Bond, Eric W, 1982. "A Direct Test of the "Lemons" Model: The Market for Used Pickup Trucks," American Economic Review, American Economic Association, vol. 72(4), pages 836-40, September. [Downloadable!] (restricted)
  15. Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-65, November. [Downloadable!] (restricted)
  16. Spence, Michael, 1978. "Product differentiation and performance in insurance markets," Journal of Public Economics, Elsevier, vol. 10(3), pages 427-447, December. [Downloadable!] (restricted)
  17. Puelz, Robert & Snow, Arthur, 1994. "Evidence on Adverse Selection: Equilibrium Signaling and Cross-Subsidization in the Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 236-57, April. [Downloadable!] (restricted)
  18. Viscusi, W Kip, 1990. "Do Smokers Underestimate Risks?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1253-69, December. [Downloadable!] (restricted)
  19. Michael D. Hurd & Kathleen McGarry, 1993. "Evaluation of Subjective Probability Distributions in the HRS," NBER Working Papers 4560, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  20. Daniel S. Hamermesh, 1985. "Expectations, Life Expectancy, and Economic Behavior," NBER Working Papers 0835, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Nerlove, Marc, 1983. "Expectations, Plans, and Realizations in Theory and Practice," Econometrica, Econometric Society, vol. 51(5), pages 1251-79, September. [Downloadable!] (restricted)
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  22. Townsend, Robert M, 1995. "Financial Systems in Northern Thai Villages," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1011-46, November. [Downloadable!] (restricted)
  23. Foster, Andrew D & Rosenzweig, Mark R, 1994. "A Test for Moral Hazard in the Labor Market: Contractual Arrangements, Effort, and Health," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 213-27, May. [Downloadable!] (restricted)
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