Are the Dimensions of Private Information More Multiple than Expected? Information Asymmetries in the Market of Supplementary Private Health Insurance in England
Our study reexamines standard econometric approaches for the detection of information asymmetries on insurance markets. We claim that evidence based on a standard framework with 2 equations, which uses potential sources of information asymmetries, should stress the importance of heterogeneity in the parameters. We argue that conclusions derived from this methodology can be misleading if the estimated coefficients in such an `unused characteristics' framework are driven by different parts of the population. We show formally that an individual's expected risk from the perspective of insurance, conditioned on certain characteristics (which are not used for calculating the risk premium), can equal the population's expectation in risk - although such characteristics are both related to risk and insurance probability, which is usually interpreted as an indicator of information asymmetries. We provide empirical evidence on the existence of information asymmetries in the market for supplementary private health insurance in the UK. Overall, we found evidence for advantageous selection into the private risk pool; ie people with lower health risk tend to insure more. The main drivers of this phenomenon seem to be characteristics such as income and wealth. Nevertheless, we also found parameter heterogeneity to be relevant, leading to possible misinterpretation if the standard `unused characteristics' approach is applied.
|Date of creation:||16 Apr 2012|
|Date of revision:|
|Publication status:||Published in Darmstadt Discussion Papers in Economics . 213 (2012-04-16)|
|Note:||for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/57826/|
|Contact details of provider:|| Postal: |
Phone: ++49 (0)6151 16-2701
Fax: ++49 (0)6151 16-6508
Web page: http://www.wi.tu-darmstadt.de/fachgebiete/fachgebiete_4/volkswirtschaftlichefachgebiete.de.jsp
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Denise Doiron & Glenn Jones & Elizabeth Savage, 2008. "Healthy, wealthy and insured? The role of self-assessed health in the demand for private health insurance," Health Economics, John Wiley & Sons, Ltd., vol. 17(3), pages 317-334.
- Chiappori, Pierre-Andre & Salanie, Bernard, 1997. "Empirical contract theory: The case of insurance data," European Economic Review, Elsevier, vol. 41(3-5), pages 943-950, April.
- Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
- Pau Olivella & Marcos Vera-Hernandez, 2006. "Testing for adverse selection into private medical insurance," IFS Working Papers W06/02, Institute for Fiscal Studies.
- Alma Cohen, 2005. "Asymmetric Information and Learning: Evidence from the Automobile Insurance Market," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 197-207, May.
- Cutler, David & McGarry, Kathleen & Finkelstein, Amy, 2008.
"Preference Heterogeneity and Insurance Markets: Explaining a Puzzle of Insurance,"
2640581, Harvard University Department of Economics.
- David M. Cutler & Amy Finkelstein & Kathleen McGarry, 2008. "Preference Heterogeneity and Insurance Markets: Explaining a Puzzle of Insurance," American Economic Review, American Economic Association, vol. 98(2), pages 157-62, May.
- David M. Cutler & Amy Finkelstein & Kathleen McGarry, 2008. "Preference Heterogeneity and Insurance Markets: Explaining a Puzzle of Insurance," NBER Working Papers 13746, National Bureau of Economic Research, Inc.
- Mark Cullen & Liran Einav & Amy Finkelstein, 2009.
"Estimating Welfare in Insurance Markets Using Variation in Prices,"
08-046, Stanford Institute for Economic Policy Research.
- Liran Einav & Amy Finkelstein & Mark R. Cullen, 2010. "Estimating Welfare in Insurance Markets Using Variation in Prices," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 877-921, August.
- Mark Cullen & Liran Einav & Amy Finkelstein, 2008. "Estimating Welfare in Insurance Markets Using Variation in Prices," Discussion Papers 08-006, Stanford Institute for Economic Policy Research.
- Liran Einav & Amy Finkelstein & Mark R. Cullen, 2008. "Estimating Welfare in Insurance Markets Using Variation in Prices," NBER Working Papers 14414, National Bureau of Economic Research, Inc.
- Kristian Bolin & Daniel Hedblom & Anna Lindgren & Bjorn Lindgren, 2010. "Asymmetric Information and the Demand for Voluntary Health Insurance in Europe," NBER Working Papers 15689, National Bureau of Economic Research, Inc.
- Alma Cohen & Peter Siegelman, 2010.
"Testing for Adverse Selection in Insurance Markets,"
Journal of Risk & Insurance,
The American Risk and Insurance Association, vol. 77(1), pages 39-84.
- Alma Cohen & Peter Siegelman, 2009. "Testing for Adverse Selection in Insurance Markets," NBER Working Papers 15586, National Bureau of Economic Research, Inc.
- Amy Finkelstein & Kathleen McGarry, 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 96(4), pages 938-958, September.
- Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
- Gavin Wallis, 2004. "The Determinants Of Demand For Private Medical Insurance: Evidence From The British Household Panel Survey," Royal Economic Society Annual Conference 2004 84, Royal Economic Society.
- Propper, Carol & Rees, Hedley, 2000.
"The Demand for Private Medical Insurance in the UK: A Cohort Analysis,"
CEPR Discussion Papers
2513, C.E.P.R. Discussion Papers.
- Propper, Carol & Rees, Hedley & Green, Katherine, 2001. "The Demand for Private Medical Insurance in the UK: A Cohort Analysis," Economic Journal, Royal Economic Society, vol. 111(471), pages C180-200, May.
- Dardanoni, V & Li Donni, P, 2008. "Testing For Asymmetric Information In Insurance Markets With Unobservable Types," Health, Econometrics and Data Group (HEDG) Working Papers 08/26, HEDG, c/o Department of Economics, University of York.
- Georges Dionne & Christian Gourieroux & Charles Vanasse, 2001. "Testing for Evidence of Adverse Selection in the Automobile Insurance Market: A Comment," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 444-473, April.
When requesting a correction, please mention this item's handle: RePEc:dar:ddpeco:57826. 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: (Dekanatssekretariat)
If references are entirely missing, you can add them using this form.