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Risk Signaling in the Health Insurance Market


  • Chu-Shiu Li

    (Department of Economics, Feng Chia University, Taiwan)


This paper analyzes equilibrium health insurance premium dependencies on signaling costs given individual health states, risk types, and risk type attributes. Since precise determination of an individual's premium is costly, insurers can categorize insureds based on relative screening costs. We show for two risk types, the equilibrium premium is either community-rated or risk-rated depending on screening costs. For multiple risk types, both policies may be concurrently available in equilibrium.

Suggested Citation

  • Chu-Shiu Li, 2005. "Risk Signaling in the Health Insurance Market," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 4(1), pages 45-52, April.
  • Handle: RePEc:ijb:journl:v:4:y:2005:i:1:p:45-52

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    References listed on IDEAS

    1. Crocker, Keith J & Snow, Arthur, 1986. "The Efficiency Effects of Categorical Discrimination in the Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 321-344, April.
    2. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
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    More about this item


    adverse selection; separating equilibrium; pooling equilibrium; signaling costs;

    JEL classification:

    • 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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