Testing for Asymmetric Information in Private Health Insurance
AbstractWe develop a test for adverse selection and use it to examine private health insurance markets. In contrast to earlier papers that consider a purely private system or a system in which private insurance supplements a public system, we focus our attention on a system where privately funded health care is substitutive of the publicly funded one. Using a model of competition among insurers, we generate predictions about the correlation between risk and the probability of taking private insurance under both symmetric information and adverse selection. These predictions constitute the basis for our adverse selection test. The theoretical model is also useful to conclude that the setting that we focus on is especially attractive to test for adverse selection. Using the British Household Panel Survey, we find evidence that adverse selection is present in this market.
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Bibliographic InfoPaper provided by Barcelona Graduate School of Economics in its series Working Papers with number 246.
Date of creation: Jan 2006
Date of revision:
Contract Theory; Testing; Health Insurance;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- I19 - Health, Education, and Welfare - - Health - - - Other
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
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