Consumer Risk Perceptions and Information in Insurance Markets with Adverse Selection PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Consumer Risk Perceptions and Information in Insurance Markets with Adverse Selection PDF full book. Access full book title Consumer Risk Perceptions and Information in Insurance Markets with Adverse Selection by James A. Ligon. Download full books in PDF and EPUB format.
Author: James A. Ligon
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Standard models of adverse selection in insurance markets assume policyholders know their loss distributions. This study examines the nature of equilibrium and the equilibrium value of information in competitive insurance markets where consumers lack complete information regarding their loss probabilities. We show that additional private information is privately and socially valuable. When the equilibrium policies separate types, policyholders can deduce the underlying probabilities from the contracts, so it is information on risk type, rather than loss probability per se, that is valuable. We show that the equilibrium is quot;as ifquot; policyholders were endowed with complete knowledge if, and only if, information is noiseless and costless. If information is noisy, the equilibrium depends on policyholders' prior beliefs and the amount of noise in the information they acquire.
Author: James A. Ligon
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Standard models of adverse selection in insurance markets assume policyholders know their loss distributions. This study examines the nature of equilibrium and the equilibrium value of information in competitive insurance markets where consumers lack complete information regarding their loss probabilities. We show that additional private information is privately and socially valuable. When the equilibrium policies separate types, policyholders can deduce the underlying probabilities from the contracts, so it is information on risk type, rather than loss probability per se, that is valuable. We show that the equilibrium is quot;as ifquot; policyholders were endowed with complete knowledge if, and only if, information is noiseless and costless. If information is noisy, the equilibrium depends on policyholders' prior beliefs and the amount of noise in the information they acquire.
Author: David A. Lereah
Publisher: Greenwood
ISBN:
Category : Business & Economics
Languages : en
Pages : 200
Get Book Here
Book Description
Author: Johannes Spinnewijn
Publisher:
ISBN:
Category : Demand (Economic theory)
Languages : en
Pages : 0
Get Book Here
Book Description
Recent empirical work finds that surprisingly little variation in the demand for insurance is explained by heterogeneity in risks. I distinguish between heterogeneity in risk preferences and risk perceptions underlying the unexplained variation. Heterogeneous risk perceptions induce a systematic difference between the revealed and actual value of insurance as a function of the insurance price. Using a sufficient statistics approach that accounts for this alternative source of heterogeneity, I find that the welfare conclusions regarding adversely selected markets are substantially different. The source of heterogeneity is also essential for the evaluation of different interventions intended to correct inefficiencies due to adverse selection like insurance subsidies and mandates, risk-adjusted pricing and information policies.
Author:
Publisher:
ISBN: 9780262270182
Category : Health insurance
Languages : en
Pages :
Get Book Here
Book Description
Author: John Horan Cawley
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 64
Get Book Here
Book Description
This paper tests restrictions implied by the canonical theory of insurance under asymmetric information using ideal data that contains the self-perceived and actual mortality risk of individuals, as well as the price and quantity of their life insurance. We report several findings which are hard to reconcile with the canonical theory. First, we find a striking independence of self-perceived risk and the price of insurance. Second, we find strong evidence of the opposite type of non-linear pricing than predicted by theory: the theory predicts that prices rise with quantity, but we find that they fall. Third, we find that risk is negatively correlated with the quantity of insurance purchased although the theory predicts a positive correlation. Fourth, we find that a substantial fraction of individuals hold multiple insurance contracts, which casts doubt on the prediction that unit prices rise with quantity because multiple small contracts dominate a large one in such a case. Lastly, we test the accuracy of the self-perceived risk of the insured through estimating the induced profits they imply. We conclude by discussing the robustness of these results and the questions they raise for future theoretical models.
Author: Varun Agarwal
Publisher:
ISBN:
Category : Insurance
Languages : en
Pages : 232
Get Book Here
Book Description
Author: L. Lee Colquitt
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
Adverse selection plays a prominent role in the insurance literature due to its negative implications for insurer financial performance and stability. However, there is a paucity of empirical evidence consistent with the existence of adverse selection in the U.S. insurance market. Potential reasons for the lack of evidence include: (1) that insurers effectively use underwriting and pricing to counteract adverse selection; or (2) that consumers either do not have, or fail to take advantage of, private information. We test for the existence of adverse selection in the credit life insurance market where opportunities to exploit asymmetric information are pronounced due to the lack of underwriting and highly regulated prices. Our analysis provides evidence consistent with adverse selection in the credit life market and suggests that the lack of empirical evidence regarding adverse selection may be due to effective underwriting rather than consumers failing to use informational advantages to their benefit.
Author: James C. Robinson
Publisher:
ISBN:
Category :
Languages : en
Pages : 72
Get Book Here
Book Description
Author: J. Robinson
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Author: S. Hun Seog
Publisher:
ISBN:
Category :
Languages : en
Pages : 18
Get Book Here
Book Description
We reinvestigate the case in which insurers have superior information regarding consumer's risk types, as studied by Villeneuve (2005, European Economic Review 49, 321-340). While Villeneuve produces interesting results on insurance contracts, the diverse outcomes make it difficult to pinpoint main implications. We make slight changes to the conditions in the Villeneuve's model by considering that there are a large number of insurers to ensure the competitive market; and that, in an equilibrium, contracts are required to be optimal even if some consumers are allowed to visit not all insurers announcing the same menus. We demonstrate that no pooling equilibrium can exist and that a separating equilibrium exists if and only if the difference between loss probabilities of types is large (types are distant). In a separating equilibrium, low risks are fully insured with actuarially fair premium, while high risks are self-insured. Our results provide a refinement of Villeneuve (2005), which is analogous to the monopoly case. This paper clarifies that high risk consumers bear information costs when insurers have superior information, in contrast with standard adverse selection models.
