Heterogeneity, Demand for Insurance, and Adverse Selection
- (pp. 308-43)
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 desirability of policies, such as insurance subsidies and mandates, commonly used to tackle adverse selection.Citation
Spinnewijn, Johannes. 2017. "Heterogeneity, Demand for Insurance, and Adverse Selection." American Economic Journal: Economic Policy, 9 (1): 308-43. DOI: 10.1257/pol.20140254Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D82 Asymmetric and Private Information; Mechanism Design
- G22 Insurance; Insurance Companies; Actuarial Studies
- G28 Financial Institutions and Services: Government Policy and Regulation
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