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Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market

Author

Listed:
  • Amy Finkelstein
  • Kathleen McGarry

Abstract

We demonstrate the existence of multiple dimensions of private information in the long-term care insurance market. Two types of people purchase insurance: individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance. Ex post, the former are higher risk than insurance companies expect, while the latter are lower risk. In aggregate, those with more insurance are not higher risk. Our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence. The results also suggest a general test for asymmetric information. (JEL D82, G22, I11)

Suggested Citation

  • 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.
    • Handle: RePEc:aea:aecrev:v:96:y:2006:i:4:p:938-958
    DOI: 10.1257/aer.96.4.938
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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    1. Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market (AER 2006) in ReplicationWiki

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