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Improving Compliance With Preventive Care: Cooperation in Mutual Health Insurance

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  • F. Barigozzi
  • R. Bourles
  • D. Henriet
  • G. Pignataro

Abstract

Preventive care should be subsidized in traditional insurance contracts since policyholders ignore the benefit of their prevention choice on the insurance premium (Ellis and Manning, 2007 JHE). We study participating policies as risk-sharing agreements among policyholders who decide how much to invest in secondary prevention. We explore under which conditions these policies allow partial or even full internalization of prevention benefits in an environment with repeated interactions between policy holders. Welfare generated by the risk-sharing agreement is increasing with the size of the pool, but at the same time the pool size must not be too large for cooperation to sustain the internalization benefits.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number wp765.

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Date of creation: Jun 2011
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Handle: RePEc:bol:bodewp:wp765

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  1. Donald Meyer & Jack Meyer, 2005. "Relative Risk Aversion: What Do We Know?," Journal of Risk and Uncertainty, Springer, Springer, vol. 31(3), pages 243-262, December.
  2. James A. Ligon & Paul D. Thistle, 2005. "The Formation of Mutual Insurers in Markets with Adverse Selection," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 78(2), pages 529-556, March.
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  8. 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, MIT Press, vol. 90(4), pages 630-49, November.
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  10. Mayers, David & Smith, Clifford W, Jr, 1988. "Ownership Structure across Lines of Property-Casualty Insurance," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 31(2), pages 351-78, October.
  11. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, American Economic Association, vol. 77(3), pages 251-77, June.
  12. James A. Ligon & Paul D. Thistle, 2008. "Moral Hazard and Background Risk in Competitive Insurance Markets," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 75(300), pages 700-709, November.
  13. Smith, Bruce D & Stutzer, Michael J, 1990. "Adverse Selection, Aggregate Uncertainty, and the Role for Mutual Insurance Contracts," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 63(4), pages 493-510, October.
  14. Smith, Bruce D & Stutzer, Michael, 1995. "A Theory of Mutual Formation and Moral Hazard with Evidence from the History of the Insurance Industry," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 8(2), pages 545-77.
  15. Doherty, Neil A & Dionne, Georges, 1993. " Insurance with Undiversifiable Risk: Contract Structure and Organizational Form of Insurance Firms," Journal of Risk and Uncertainty, Springer, Springer, vol. 6(2), pages 187-203, April.
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