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Asymmetric information and insurance: An experimental approach

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  • Bedsworth, Fredrick
  • Neal, Daniel R.
  • Portillo, Javier E.
  • Willardsen, Kevin

Abstract

Separate identification of moral hazard and adverse selection in insurance markets is empirically difficult. To overcome this limitation, this paper develops a series of controlled laboratory experiments to examine how adverse selection and moral hazard separately affect agent performance in a real-effort task. We explore how agent performance changes across a baseline with no insurance option, a treatment where individuals can choose to purchase insurance, and a third treatment where individuals must purchase insurance. We believe our experimental design can be used as a wind-tunnel that is flexible enough to incorporate alternative price changes or contract designs while permitting researchers to separately identify moral hazard and adverse selection under those conditions.

Suggested Citation

  • Bedsworth, Fredrick & Neal, Daniel R. & Portillo, Javier E. & Willardsen, Kevin, 2021. "Asymmetric information and insurance: An experimental approach," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 92(C).
  • Handle: RePEc:eee:soceco:v:92:y:2021:i:c:s2214804321000367
    DOI: 10.1016/j.socec.2021.101696
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    References listed on IDEAS

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    More about this item

    Keywords

    Experiments; Insurance; Adverse selection; Moral hazard;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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