Webb, David C. 
ORCID: 0009-0005-5611-7253
(2009)
Asymmetric information, long-term care insurance, and annuities: the case for bundled contracts.
Journal of Risk and Insurance, 76 (1).
pp. 53-85.
ISSN 0022-4367
Abstract
This article examines the markets for long-term care insurance and annuities when there is asymmetric information and there are costs of administering contracts. Individuals differ in terms of their risk aversion. Risk-averse individuals take more care of their health and are relatively high risk in the annuities market and relatively low risk in the long-term care insurance market. In the long-term care insurance market, both separating and partial-pooling equilibria are possible. However, in the stand-alone annuity market, only separating equilibria are possible. We show, consistent with the extant empirical research, that in the presence of administration costs the more risk-averse individuals may buy relatively more long-term care insurance and more annuity coverage. Under the same assumptions, we show that equilibria exist with bundled contracts that Pareto dominate the outcomes with stand-alone contracts and are robust to competition from stand-alone contracts. The remaining empirical puzzle is to explain why bundled contracts are such a small share of the voluntary annuity market.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.wiley.com/bw/journal.asp?ref=0022-4367 |
| Additional Information: | © 2009 The Journal of Risk and Insurance |
| Divisions: | Finance |
| Subjects: | H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management H Social Sciences > HG Finance |
| Date Deposited: | 08 Feb 2011 15:52 |
| Last Modified: | 01 Nov 2024 05:19 |
| URI: | http://eprints.lse.ac.uk/id/eprint/32280 |
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