Consumer Risk Perceptions And Information In Insurance Markets With Adverse Selection
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Consumer Risk Perceptions And Information In Insurance Markets With Adverse Selection
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Author : James A. Ligon
language : en
Publisher:
Release Date : 2008
Consumer Risk Perceptions And Information In Insurance Markets With Adverse Selection written by James A. Ligon and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
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.
Insurance Markets
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Author : David A. Lereah
language : en
Publisher: Greenwood
Release Date : 1985
Insurance Markets written by David A. Lereah and has been published by Greenwood this book supported file pdf, txt, epub, kindle and other format this book has been release on 1985 with Business & Economics categories.
Adverse Selection And Risk Rating In Insurance Markets Final Report
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Author : James C. Robinson
language : en
Publisher:
Release Date : 1994
Adverse Selection And Risk Rating In Insurance Markets Final Report written by James C. Robinson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1994 with categories.
Heterogeneity Demand For Insurance And Adverse Selection
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Author : Johannes Spinnewijn
language : en
Publisher:
Release Date : 2012
Heterogeneity Demand For Insurance And Adverse Selection written by Johannes Spinnewijn and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with Demand (Economic theory) categories.
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.
An Empirical Examination Of Information Barriers To Trade In Insurance
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Author : John Horan Cawley
language : en
Publisher:
Release Date : 1996
An Empirical Examination Of Information Barriers To Trade In Insurance written by John Horan Cawley and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1996 with Economics categories.
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.
Adverse Selection In The Credit Life Insurance Market
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Author : L. Lee Colquitt
language : en
Publisher:
Release Date : 2012
Adverse Selection In The Credit Life Insurance Market written by L. Lee Colquitt and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
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.
Adverse Selection And Risk Rating In Insurance Markets Ntis Pb94 182011
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Author : J. Robinson
language : en
Publisher:
Release Date :
Adverse Selection And Risk Rating In Insurance Markets Ntis Pb94 182011 written by J. Robinson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on with categories.
Time Risk Precommitment And Adverse Selection In Competitive Insurance Markets
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Author : Mark V. Pauly
language : en
Publisher:
Release Date : 2003
Time Risk Precommitment And Adverse Selection In Competitive Insurance Markets written by Mark V. Pauly and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with Competition, International categories.
This informal paper explores models of competitve insurance market equilibrium when individuals of initially similar apparent risk experience divergence in risk levels over time. The information structrue is modeled in three alternative ways: all insurers and insureds know risk at any point in time, current insurer and insured know risk, and only the individual knows risk. Insurers always know the average risk. It is shown that some models lead to "backloading" of premiums in which initial period expected expense, and that other models lead to "frontloading" of premiums and policy provisions of "guaranteed renewability." Finally, it is shown that guaranteed renewability greatly reduces the possibility of adverse selection.
On The Competition Between Insurers With Superior Information
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Author : S. Hun Seog
language : en
Publisher:
Release Date : 2014
On The Competition Between Insurers With Superior Information written by S. Hun Seog and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
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.
Equilibrium In Competitive Insurance Markets With Ex Ante Adverse Selection And Ex Post Moral Hazard
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Author : William Jack
language : en
Publisher:
Release Date : 1998
Equilibrium In Competitive Insurance Markets With Ex Ante Adverse Selection And Ex Post Moral Hazard written by William Jack and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1998 with Equilibrium (Economics) categories.