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Beyond Testing: Empirical Models of Insurance Markets

  • Liran Einav
  • Amy Finkelstein
  • Jonathan Levin

We describe recent advances in the empirical analysis of insurance markets. This new research proposes ways to estimate individual demand for insurance and the relationship between prices and insurer costs in the presence of adverse and advantageous selection. We discuss how these models permit the measurement of welfare distortions arising from asymmetric information and the welfare consequences of potential government policy responses. We also discuss some challenges in modeling imperfect competition between insurers, and outline a series of open research questions.

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File URL: http://www.nber.org/papers/w15241.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15241.

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Date of creation: Aug 2009
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Publication status: published as Liran Einav & Amy Finkelstein & Jonathan Levin, 2010. "Beyond Testing: Empirical Models of Insurance Markets," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 311-336, 09.
Handle: RePEc:nbr:nberwo:15241
Note: AG HC IO PE
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  1. Florian Heiss & Daniel McFadden & Joachim Winter, 2010. "Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans," NBER Chapters, in: Research Findings in the Economics of Aging, pages 413-481 National Bureau of Economic Research, Inc.
  2. Martin Feldstein, 2005. "Rethinking Social Insurance," American Economic Review, American Economic Association, vol. 95(1), pages 1-24, March.
  3. Alma Cohen & Liran Einav, 2007. "Estimating Risk Preferences from Deductible Choice," American Economic Review, American Economic Association, vol. 97(3), pages 745-788, June.
  4. Amy Finkelstein & James Poterba, 2006. "Testing for Asymmetric Information Using 'Unused Observables' in Insurance Markets: Evidence from the U.K. Annuity Market," NBER Working Papers 12112, National Bureau of Economic Research, Inc.
  5. Cardon, James H & Hendel, Igal, 2001. "Asymmetric Information in Health Insurance: Evidence from the National Medical Expenditure Survey," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 408-27, Autumn.
  6. Fang, Hanming & Keane, Michael & Silverman, Dan, 2006. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," Working Papers 17, Yale University, Department of Economics.
  7. Mark Cullen & Liran Einav & Amy Finkelstein, 2009. "Estimating Welfare in Insurance Markets Using Variation in Prices," Discussion Papers 08-046, Stanford Institute for Economic Policy Research.
  8. Hemenway, David, 1990. "Propitious Selection," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1063-69, November.
  9. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-74, September.
  10. Jonathan Levin, 2001. "Information and the Market for Lemons," Working Papers 01004, Stanford University, Department of Economics.
  11. William Adams & Liran Einav & Jonathan Levin, 2007. "Liquidity Constraints and Imperfect Information in Subprime Lending," NBER Working Papers 13067, National Bureau of Economic Research, Inc.
  12. David M. Cutler & Richard J. Zeckhauser, 1999. "The Anatomy of Health Insurance," NBER Working Papers 7176, National Bureau of Economic Research, Inc.
  13. Jaap H. Abbring & James J. Heckman & Pierre-André Chiappori & Jean Pinquet, 2003. "Adverse Selection and Moral Hazard In Insurance: Can Dynamic Data Help to Distinguish?," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 512-521, 04/05.
  14. Cutler, David & McGarry, Kathleen & Finkelstein, Amy, 2008. "Preference Heterogeneity and Insurance Markets: Explaining a Puzzle of Insurance," Scholarly Articles 2640581, Harvard University Department of Economics.
  15. M. Bundorf & Jonathan Levin & Neale Mahoney, 2008. "Pricing and Welfare in Health Plan Choice," Discussion Papers 07-047, Stanford Institute for Economic Policy Research.
  16. Amy Finkelstein & James Poterba, 2004. "Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 183-208, February.
  17. Roozbeh Hosseini, 2008. "Adverse Selection in the Annuity Market and the Role for Social Security," 2008 Meeting Papers 264, Society for Economic Dynamics.
  18. Brown, Jeffrey, 2000. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Working Paper Series rwp00-007, Harvard University, John F. Kennedy School of Government.
  19. Glied, Sherry, 2000. "Managed care," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 13, pages 707-753 Elsevier.
  20. Levon Barseghyan & Jeffrey Prince & Joshua C. Teitelbaum, 2011. "Are Risk Preferences Stable across Contexts? Evidence from Insurance Data," American Economic Review, American Economic Association, vol. 101(2), pages 591-631, April.
  21. Patrick Bajari & Han Hong & Ahmed Khwaja, 2006. "Moral Hazard, Adverse Selection and Health Expenditures: A Semiparametric Analysis," NBER Working Papers 12445, National Bureau of Economic Research, Inc.
  22. Igal Hendel & Alessandro Lizzeri, 2003. "The Role Of Commitment In Dynamic Contracts: Evidence From Life Insurance," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 299-327, February.
  23. 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.
  24. Puelz, Robert & Snow, Arthur, 1994. "Evidence on Adverse Selection: Equilibrium Signaling and Cross-Subsidization in the Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 236-57, April.
  25. Ilayperuma Simon, Kosali, 2005. "Adverse selection in health insurance markets? Evidence from state small-group health insurance reforms," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1865-1877, September.
  26. 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.
  27. Jaap H. Abbring & Pierre-Andre Chiappori, 2004. "Moral Hazard and Dynamic Insurance Data," 2004 Meeting Papers 316, Society for Economic Dynamics.
  28. Jeffrey R. Brown & Amy Finkelstein, 2008. "The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 98(3), pages 1083-1102, June.
  29. John Cawley & Tomas Philipson, 1996. "An Empirical Examination of Information Barriers to Trade in Insurance," NBER Working Papers 5669, National Bureau of Economic Research, Inc.
  30. Thomas Buchmueller & John DiNardo, 1999. "Did Community Rating Induce an Adverse Selection Death Spiral? Evidencefrom New York, Pennsylvania and Connecticut," NBER Working Papers 6872, National Bureau of Economic Research, Inc.
  31. Jason T. Abaluck & Jonathan Gruber, 2009. "Choice Inconsistencies Among the Elderly: Evidence from Plan Choice in the Medicare Part D Program," NBER Working Papers 14759, National Bureau of Economic Research, Inc.
  32. 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.
  33. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
  34. Liran Einav & Mark Jenkins & Jonathan Levin, 2012. "Contract Pricing in Consumer Credit Markets," Econometrica, Econometric Society, vol. 80(4), pages 1387-1432, 07.
  35. 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.
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