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Asymmetric Information with multiple risks: the case of the Chilean Private Health Insurance Market

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  • De La Mata, Dolores
  • Machado, Matilde P.
  • Olivella, Pau
  • Valdés, Maria Nieves

Abstract

We extend Rothshild and Stiglitz (1976) model to two sources of risk to better proxy real-world health insurance markets. This extension produces an interesting theoretical possibility: Take individuals A and B, who are low risks in one dimension but A is riskier in the other dimension. Then, A may enjoy less coverage than B in the former dimension (coverage reversal). The existence of this reversal determines which individuals are more likely to suffer adverse selection. We adapt Chiappori and Salanié (2000) positive correlation test to account for this multi-dimensionality and apply it to individual-level claims data for the privately insured in Chile.

Suggested Citation

  • De La Mata, Dolores & Machado, Matilde P. & Olivella, Pau & Valdés, Maria Nieves, 2022. "Asymmetric Information with multiple risks: the case of the Chilean Private Health Insurance Market," UC3M Working papers. Economics 35441, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:35441
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    JEL classification:

    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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