Heterogeneity, demand for insurance and adverse selection

Spinnewijn, Johannes (2017) Heterogeneity, demand for insurance and adverse selection. American Economic Journal: Economic Policy, 9 (1). pp. 308-343. ISSN 1945-7731

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Abstract

Recent evidence underlines the importance of demand frictions distorting insurance choices. Heterogeneous frictions cause the willingness to pay for insurance to be biased upward (relative to value) for those purchasing insurance, but downward for those who remain uninsured. The paper integrates this finding with standard methods for evaluating welfare in insurance markets and demonstrates how welfare conclusions regarding adversely selected markets are affected. The demand frictions framework also makes qualitatively different predictions about the desir- ability of policies like insurance subsidies and mandates, commonly used to tackle adverse selection.

Item Type:	Article
Official URL:	https://www.aeaweb.org/
Additional Information:	© 2016 American Economic Association
Divisions:	Economics
Subjects:	H Social Sciences > HC Economic History and Conditions
JEL classification:	D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance; Insurance Companies G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
Date Deposited:	13 May 2016 10:40
Last Modified:	15 Apr 2024 05:57
URI:	http://eprints.lse.ac.uk/id/eprint/66511

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