6533b7dcfe1ef96bd1271704
RESEARCH PRODUCT
The welfare cost of unpriced heterogeneity in insurance markets
Paolo Li DonniValentino Dardanonisubject
Economics and EconometricsActuarial sciencemedia_common.quotation_subject05 social sciencesMedigap InsuranceGeneral insurance01 natural sciencesUnobservableMicroeconomics010104 statistics & probabilitySettore SECS-P/03 - Scienza Delle Finanze0502 economics and businessunpriced heterogeneityEconomicsDeadweight lossSurvey data collection050207 economics0101 mathematicsInefficiencyWelfarePrivate information retrievalinsurance marketsmedia_commondescription
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.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2016-11-01 |