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Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market

  • Amy Finkelstein
  • James Poterba

We use a unique data set of annuities in the United Kingdom to test for adverse selection. We find systematic relationships between ex post mortality and annuity characteristics, such as the timing of payments and the possibility of payments to the annuitant's estate. These patterns are consistent with the presence of asymmetric information. However, we find no evidence of substantive mortality differences by annuity size. These results suggest that the absence of selection on one contract dimension does not preclude its presence on others. This highlights the importance of considering detailed features of insurance contracts when testing theoretical models of asymmetric information.

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File URL: http://dx.doi.org/10.1086/379936
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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 112 (2004)
Issue (Month): 1 (February)
Pages: 183-208

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Handle: RePEc:ucp:jpolec:v:112:y:2004:i:1:p:183-208
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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