Long-Term Care Insurance: Information Frictions and Selection
M. Martin Boyer
Philippe De Donder
- American Economic Journal: Economic Policy (Forthcoming)
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.
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