This paper conducts a stated-choice experiment where respondents are asked to rate various insurance products aimed to protect against financial risks associated with long-term care needs. Using exogenous variation in prices from the survey design and individual cost estimates, these stated-choice probabilities are used to predict market equilibrium for long-term care insurance. Our results are twofold. First, information frictions are pervasive. Second, measuring the welfare losses associated with frictions in a framework that also allows for selection, it is found that information frictions reduce equilibrium take-up and lead to large welfare losses, while selection plays little role.
Boyer, M. Martin, Philippe De Donder, Claude Fluet, Marie-Louise Leroux, and Pierre-Carl Michaud.
"Long-Term Care Insurance: Information Frictions and Selection."
American Economic Journal: Economic Policy,
Asymmetric and Private Information; Mechanism Design
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Insurance; Insurance Companies; Actuarial Studies
Health Insurance, Public and Private