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Moral hazard, adverse selection, and health expenditures: A semiparametric analysis

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  • Patrick Bajari
  • Christina Dalton
  • Han Hong
  • Ahmed Khwaja

Abstract

type="main"> Theoretical models predict asymmetric information in health insurance markets may generate inefficient outcomes due to adverse selection and moral hazard. However, previous empirical research has found it difficult to disentangle adverse selection from moral hazard in health care consumption. We propose a two-step semiparametric estimation strategy to identify and estimate a canonical model of asymmetric information in health care markets. With this method, we can estimate a structural model of demand for health care. We illustrate this method using a claims-level data set with confidential information from a large self-insured employer. We find significant evidence of moral hazard and adverse selection.

Suggested Citation

  • Patrick Bajari & Christina Dalton & Han Hong & Ahmed Khwaja, 2014. "Moral hazard, adverse selection, and health expenditures: A semiparametric analysis," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 747-763, December.
    • Handle: RePEc:bla:randje:v:45:y:2014:i:4:p:747-763
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