Medical insurance with rank-dependent utility
A well-known result in the medical insurance literature is that zero co-insurance is never second-best for insurance contracts subject to moral hazard. We replace the usual expected utility assumption with a version of the rank-dependent utility (RDU) model that has greater experimental support. When consumers exhibit such preferences, we show that zero co-insurance may in fact be optimal, especially for low-risk consumers. Indeed, it is even possible that the first-best and second-best contracts are identical. In this case, there is no “market failure”, despite the informational asymmetry. We argue that these RDU results are in better accord with the empirical evidence from US health insurance markets. Copyright Springer-Verlag Berlin Heidelberg 2003
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 22 (2003)
Issue (Month): 3 (October)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/economic+theory/journal/199/PS2|
When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:22:y:2003:i:3:p:689-698. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.