The welfare cost of unpriced heterogeneity in insurance markets

• 成果类型: Article
• 署名作者: Dardanoni, Valentino; Li Donni, Paolo
• 署名单位: University of Palermo
• 刊物名称: RAND JOURNAL OF ECONOMICS
• ISSN/ISSBN: 0741-6261
• DOI: 10.1111/1756-2171.12164
• 发表日期: 2016
• 页码: 998-1028
• 关键词: Asymmetric information; medigap insurance; selection; models; likelihood

摘要

We consider the welfare loss of unpriced heterogeneity in insurance markets, which results when private information or regulatory constraints prevent insurance companies to set premiums reflecting expected costs. We propose a methodology which uses survey data to measure this welfare loss. After identifying some types which determine expected risk and insurance demand, we derive the key factors defining the demand and cost functions in each market induced by these unobservable types. These are used to quantify the efficiency costs of unpriced heterogeneity. We apply our methods to the US Long-Term Care and Medigap insurance markets, where we find that unpriced heterogeneity causes substantial inefficiency.