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An Empirical Examination of Information Barriers to Trade in Insurance

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  • Tomas Philipson
  • John Cawley

Abstract

This paper uses direct evidence to evaluate whether asymmetric information is a barrier to trade in the largest market for private insurance in the world: life insurance. We report several findings that seem difficult to reconcile with the conventional theory of insurance under asymmetric information. We conjecture that sellers may know their costs of production better than consumers in this market, as in those for most other products.

Suggested Citation

  • 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.
  • Handle: RePEc:aea:aecrev:v:89:y:1999:i:4:p:827-846 Note: DOI: 10.1257/aer.89.4.827
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    References listed on IDEAS

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    1. Russell Cooper, 1983. "On Allocative Distortions in Problems of Self-Selection," Cowles Foundation Discussion Papers 647R, Cowles Foundation for Research in Economics, Yale University.
    2. Tomas Philipson & John Cawley, 1999. "An Empirical Examination of Information Barriers to Trade in Insurance," American Economic Review, American Economic Association, pages 827-846.
    3. Gerald S. Goldstein & Mark V. Pauly, 1976. "Group Health Insurance as a Local Public Good," NBER Chapters,in: The Role of Health Insurance in the Health Services Sector, pages 73-114 National Bureau of Economic Research, Inc.
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    5. Puelz, Robert & Snow, Arthur, 1994. "Evidence on Adverse Selection: Equilibrium Signaling and Cross-Subsidization in the Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 236-257, April.
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    8. Genesove, David, 1993. "Adverse Selection in the Wholesale Used Car Market," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 644-665, August.
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    10. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-359, March.
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    12. Viscusi, W Kip, 1990. "Do Smokers Underestimate Risks?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1253-1269, December.
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    23. Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-1365, November.
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    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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