Selection in Insurance Markets: Theory and Empirics in Pictures
AbstractWe present a graphical framework for analyzing both theoretical and empirical work on selection in insurance markets. We begin by using this framework to review the “textbook” adverse selection environment and its implications for insurance allocation, social welfare, and public policy. We then discuss several important extensions to this classical treatment that are necessitated by important real world features of insurance markets and which can be easily incorporated in the basic framework. Finally, we use the same graphical approach to discuss the intuition behind recently developed empirical methods for testing for the existence of selection and examining its welfare consequences. We conclude by discussing some important issues that are not well-handled by this framework and which, perhaps not unrelatedly, have been little addressed by the existing empirical work.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16723.
Date of creation: Jan 2011
Date of revision:
Publication status: published as “Selection in Insurance Markets: Theory and Empirics in Pictures,” with Amy Finkelstein, Journal of Economics Perspectives 25(1), 1 15 - 138 , Winter 2011 .
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Find related papers by JEL classification:
- D60 - Microeconomics - - Welfare Economics - - - General
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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