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An Econometric Analysis of Insurance Markets with Separate Identification for Moral Hazard and Selection Problems

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  • Shinya Sugawara

    (Graduate School of Economics, University of Tokyo)

  • Yasuhiro Omori

    (Faculty of Economics, University of Tokyo)

Abstract

This paper proposes a simple econometric framework that can identify moral hazard and selection problems separately in insurance markets. Although our methodology requires behavioral assumptions on the consumer's optimization, we show that these assumptions are necessary for the separate identification of the two sources of information asymmetry. Our method is applied to the dental insurance market in the United States. In addition to standard moral hazard, we find advantageous selection, which is not detected by a conventional methodology.

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Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-849.

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Length: 33 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:tky:fseres:2012cf849

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  1. Fang, Hanming & Keane, Michael & Silverman, Dan, 2006. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," Working Papers 17, Yale University, Department of Economics.
  2. Koop,Gary & Poirier,Dale J. & Tobias,Justin L., 2007. "Bayesian Econometric Methods," Cambridge Books, Cambridge University Press, number 9780521855716.
  3. Shinya Sugawara & Yasuhiro Omori, 2012. "Duopoly In The Japanese Airline Market: Bayesian Estimation For The Entry Game," The Japanese Economic Review, Japanese Economic Association, vol. 63(3), pages 310-332, 09.
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  6. Heckman, James J, 1978. "Dummy Endogenous Variables in a Simultaneous Equation System," Econometrica, Econometric Society, vol. 46(4), pages 931-59, July.
  7. Tomas Philipson & John Cawley, 1999. "An Empirical Examination of Information Barriers to Trade in Insurance," American Economic Review, American Economic Association, vol. 89(4), pages 827-846, September.
  8. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
  9. Sintonen, Harri & Linnosmaa, Ismo, 2000. "Economics of dental services," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 24, pages 1251-1296 Elsevier.
  10. Mueller, Curt D. & Monheit, Alan C., 1988. "Insurance coverage and the demand for dental care : Results for non-aged white adults," Journal of Health Economics, Elsevier, vol. 7(1), pages 59-72, March.
  11. Gourieroux, Christian & Monfort, Alain, 1979. "On the characterization of a joint probability distribution by conditional distributions," Journal of Econometrics, Elsevier, vol. 10(1), pages 115-118, April.
  12. De Meza, D. & Webb, D.C., 2000. "Advantageous Selection in Insurance Market," Discussion Papers 0007, Exeter University, Department of Economics.
  13. Takeshi Amemiya, 1975. "Qualitative Response Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 4, number 3, pages 363-372 National Bureau of Economic Research, Inc.
  14. Poirier, Dale J., 1980. "Partial observability in bivariate probit models," Journal of Econometrics, Elsevier, vol. 12(2), pages 209-217, February.
  15. Cardon, James H & Hendel, Igal, 2001. "Asymmetric Information in Health Insurance: Evidence from the National Medical Expenditure Survey," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 408-27, Autumn.
  16. Amy Finkelstein & Kathleen McGarry, 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 96(4), pages 938-958, September.
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