Heterogeneity, demand for insurance and adverse selection

Spinnewijn, Johannes ORCID: 0000-0002-7963-5847 (2012) Heterogeneity, demand for insurance and adverse selection. CEP Discussion Papers (CEPDP1142). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

Recent empirical work finds that surprisingly little variation in the demand for insurance is explained by heterogeneity in risks. I distinguish between heterogeneity in risk preferences and risk perceptions underlying the unexplained variation. Heterogeneous risk perceptions induce a systematic difference between the revealed and actual value of insurance as a function of the insurance price. Using a sufficient statistics approach that accounts for this alternative source of heterogeneity, I find that the welfare conclusions regarding adversely selected markets are substantially different. The source of heterogeneity is also essential for the evaluation of different interventions intended to correct inefficiencies due to adverse selection like insurance subsidies and mandates, risk-adjusted pricing and information policies.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2012 The Author(s)
Divisions:	Economics
Subjects:	H Social Sciences > HC Economic History and Conditions
JEL classification:	D - Microeconomics > D6 - Welfare Economics > D60 - General D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
Date Deposited:	22 Feb 2024 09:48
Last Modified:	01 Oct 2024 03:21
URI:	http://eprints.lse.ac.uk/id/eprint/121775

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