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Adverse Selection in Low-Income Health Insurance Markets: Evidence from an RCT in Pakistan

Author

Listed:
  • Torben Fischer
  • Markus Frölich
  • Andreas Landmann

Abstract

We present robust evidence on adverse selection in hospitalization insurance for low-income individuals that received first-time access to insurance. A large randomized control trial from Pakistan allows us to separate adverse selection from moral hazard, estimate how selection changes at different points of the demand curve, and test simple measures to limit adverse selection. The results reveal substantial selection in individual policies, leading to welfare losses and the threat of a market breakdown. Bundling insurance policies at the household level or higher almost eliminates adverse selection, thus mitigating its welfare consequences and facilitating sustainable insurance supply.

Suggested Citation

  • Torben Fischer & Markus Frölich & Andreas Landmann, 2023. "Adverse Selection in Low-Income Health Insurance Markets: Evidence from an RCT in Pakistan," American Economic Journal: Applied Economics, American Economic Association, vol. 15(3), pages 313-340, July.
    • Handle: RePEc:aea:aejapp:v:15:y:2023:i:3:p:313-40
    DOI: 10.1257/app.20200639
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    Cited by:

    1. Anup Malani & Cynthia Kinnan & Gabriella Conti & Kosuke Imai & Morgen Miller & Shailender Swaminathan & Alessandra Voena & Bartek Woda, 2024. "Evaluating and Pricing Health Insurance in Lower-Income Countries: A Field Experiment in India," CESifo Working Paper Series 11006, CESifo.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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