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American Economic Review: Vol. 96 No. 4 (September 2006)
AER Volume. 96, Issue 4 | 
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Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market
Article Citation
Finkelstein, Amy, and
Kathleen McGarry. 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market."
American Economic Review,
96(4): 938-958.
DOI: 10.1257/aer.96.4.938
DOI: 10.1257/aer.96.4.938
Abstract
We demonstrate the existence of multiple dimensions of private information in the
long-term care insurance market. Two types of people purchase insurance: individuals
with private information that they are high risk and individuals with private
information that they have strong taste for insurance. Ex post, the former are higher
risk than insurance companies expect, while the latter are lower risk. In aggregate,
those with more insurance are not higher risk. Our results demonstrate that
insurance markets may suffer from asymmetric information even absent a positive
correlation between insurance coverage and risk occurrence. The results also
suggest a general test for asymmetric information. (JEL D82, G22, I11)
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Authors
Finkelstein, Amy
McGarry, Kathleen
McGarry, Kathleen
