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An Econometric Analysis of Insurance Markets with Separate Identification for Moral Hazard and Selection Problems

  • Shinya Sugawara

    (Graduate School of Economics, University of Tokyo)

  • Yasuhiro Omori

    (Faculty of Economics, University of Tokyo)

This paper proposes a simple econometric framework that can identify moral hazard and selection problems separately in insurance markets. Although our methodology requires behavioral assumptions on the consumer's optimization, we show that these assumptions are necessary for the separate identification of the two sources of information asymmetry. Our method is applied to the dental insurance market in the United States. In addition to standard moral hazard, we find advantageous selection, which is not detected by a conventional methodology.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-849.

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Length: 33 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:tky:fseres:2012cf849
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  1. de Meza, David & Webb, David C, 2001. "Advantageous Selection in Insurance Markets," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 249-62, Summer.
  2. Koop, Gary M & Poirier, Dale J & Tobias, Justin, 2007. "Bayesian Econometric Methods," Staff General Research Papers 12722, Iowa State University, Department of Economics.
  3. C. Gourieroux & Jean-Jacques Laffont & A. Monfort, 1979. "Coherency Conditions In Simultaneous Linear Equation Models With Endogenous Switching Regimes," NBER Working Papers 0343, National Bureau of Economic Research, Inc.
  4. Elie Tamer & Federico Ciliberto, 2004. "Market Structure and Multiple Equilibria in Airline Markets," Econometric Society 2004 North American Winter Meetings 517, Econometric Society.
  5. Shinya Sugawara & Yasuhiro Omori, 2012. "Duopoly In The Japanese Airline Market: Bayesian Estimation For The Entry Game," The Japanese Economic Review, Japanese Economic Association, vol. 63(3), pages 310-332, 09.
  6. Poirier, Dale J., 1980. "Partial observability in bivariate probit models," Journal of Econometrics, Elsevier, vol. 12(2), pages 209-217, February.
  7. 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.
  8. Hanming Fang & Michael P. Keane & Dan Silverman, 2006. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," NBER Working Papers 12289, National Bureau of Economic Research, Inc.
  9. Mueller, Curt D. & Monheit, Alan C., 1988. "Insurance coverage and the demand for dental care : Results for non-aged white adults," Journal of Health Economics, Elsevier, vol. 7(1), pages 59-72, March.
  10. 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.
  11. 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.
  12. Takeshi Amemiya, 1975. "Qualitative Response Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 4, number 3, pages 363-372 National Bureau of Economic Research, Inc.
  13. repec:cup:cbooks:9780521671736 is not listed on IDEAS
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  15. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
  16. Gourieroux, Christian & Monfort, Alain, 1979. "On the characterization of a joint probability distribution by conditional distributions," Journal of Econometrics, Elsevier, vol. 10(1), pages 115-118, April.
  17. Sintonen, Harri & Linnosmaa, Ismo, 2000. "Economics of dental services," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 24, pages 1251-1296 Elsevier.
  18. James J. Heckman, 1977. "Dummy Endogenous Variables in a Simultaneous Equation System," NBER Working Papers 0177, National Bureau of Economic Research, Inc.
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