testing for evidence of adverse selection in the automobile insurance market a comment in 1994 puelz and snow presented empirical evidence of adverse selection in the market for automobile collision insurance using data from a private insurer they claimed to have found strong evidence of adverse selection in the insurer s portfolio their test was based on individuals choice of deductible in each risk class from the models of rothschild and stiglitz 1976 and wilson 1977 it is well known that if residual adverse selection is present in some risk classes insurers will offer menus of contracts from which insureds will self select at equilibrium higher risk individuals will choose the smaller deductible and will be charged the higher price per unit of insurance dionne doherty and fombaron 2000 an empirical test of the theory is to verify in each risk class whether lower deductibles are chosen by insureds with higher accident proba

testing for asymmetric information in insurance markets the first goal of this paper is to provide a simple and general test of the presence of asymmetric information in contractual relationships within a competitive context we also argue that insurance data are particularly well suited to such empirical investigations to illustrate this claim we use data on contracts and accidents to investigate the extent of asymmetric information in the french market for automobile insurance using various parametric and nonparametric methods we find no evidence for the presence of asymmetric information in this market

marriage divorce and asymmetric information we use data on people s valuations of options outside marriage and beliefs about spouses options the data demonstrate that in some couples one spouse would be happier and the other spouse unhappier outside of some marriages suggesting that bargaining takes place and that spouses have private information we estimate a bargaining model with interdependent utility that quantifies the resulting inefficiencies our results show that people forgo some utility in order to make their spouses better off and in doing so offset much of the inefficiency generated by their imperfect knowledge thus we find evidence of asymmetric information and interdependent utility in marriage

reservation wages and the cost of unemployment this paper studies direct evidence on reservation wages reported in great britain in 1982 to assess 1 whether such asking prices are high and 2 whether variations in these reservation wages are related to differences in measures of the subjective and objective costs of unemployment a majority overall and for various subgroups reports reservation wages no higher than own past wages adjusted for earnings growth but there is nonetheless considerable dispersion in the ratio of reservation to past wages reservation wages are somewhat related to measures of the differential cost of unemployment most clearly for men although the independent role of benefits is often imprecisely measured however exactly which of these costs matter differs significantly according to whether the separation from last employment was voluntary or involuntary copyright 1989 by the london school of economics and political science

the tragedy of tourism resources as the outcome of a strategic game a new analytical framework abstract game theory is rarely used to deal with the overuse and misuse of tourism resources when it happens the issue is normally explained within a non cooperative setting in which because of the free riding option a problem emerges as the socially irrational outcome of an individually rational behaviour social dilemma in some cases the assumptions upon which this explanation rests risk lacking both descriptive accuracy and predictive power since tourism is the encounter of a stable residents with a changing tourists population the paper asserts that in many cases the issue may be better investigated within a strategic game in which the players do not know an aspect of their environment that is important for their choice bayesian game building on this the paper demonstrates why an unsustainable path may emerge even when both players prefer preservation to exploitation and no free ride incentive exists then it addresses some policy issues to prevent the dreaded result that non cooperative behaviour would yield

the basic analytics of moral hazard the basic analytics of moral hazard are developed using the simplest possible model of the insurance market even when the underlying expected utility function and the function relating the accident probability to accident prevention effort are extremely well behaved the indifference curves and feasibility set the set of insurance contracts which at least break even are not indifference curves need not be convex and feasibility sets never are priceand income consumption lines may be discontinuous and effort is not in general a monotonic or continuous function of the parameters of the insurance policies provided

selection effects in the united kingdom individual annuities market this paper explores adverse selection in the voluntary and compulsory individual annuity markets in the united kingdom two empirical regularities support standard models of adverse selection first annuitants are longer lived than non annuitants these mortality differences are more pronounced in the voluntary than in the compulsory annuity market we estimate that the amount of adverse selection in the compulsory market is about one half of that in the voluntary market second the pricing of different types of annuity products within each annuity market is consistent with individuals selecting products based in part on private information about their mortality prospects the aging of populations in many developed nations has generated substantial interest in the way households finance consumption in their retirement years annuities insurance products that provide a payment stream for as long as the insured individual is alive offer one way to spread an accumulated stock of resources over a retirement period of uncertain length theoretical research beginning with yaari 1965 suggests substantial utility gains from annuitisation in the presence of stochastic length of life public policy discussions have also generated substantial current interest in the operation of annuity markets the decline in long term interest rates in the united kingdom since the early 1990s has coincided with a decline in annuity payouts relative to annuity premia this has sparked a debate

evaluation of the subjective probabilities of survival in the health and retirement study in the health and retirement study respondents were asked about the chances they would live to 75 or to 85 we analyze these responses to determine if they behave like probabilities of survival if their averages are close to average probabilities in the population and if they have correlations with other variables that are similar to correlations with actual mortality outcomes we find that generally they do behave like probabilities and that they do aggregate to population probabilities most remarkable however is that they covary with other variables in the same way actual outcomes vary with the variables for example respondents with higher socioeconomic status give higher probabilities of survival whereas respondents who smoke give lower probabilities we conclude that these measures of subjective probabilities have great potential use in models of intertemporal decision making under uncertainty

random choice and private information we consider an agent who chooses an option after receiving some private information this information however is unobserved by an analyst so from the latter s perspective choice is probabilistic or random we provide a theory in which information can be fully identified from random choice in addition the analyst can perform the following inferences even when information is unobservable 1 directly compute ex ante valuations of menus from random choice and vice versa 2 assess which agent has better information by using choice dispersion as a measure of informativeness 3 determine if the agent s beliefs about information are dynamically consistent and 4 test to see if these beliefs are well calibrated or rational

the efficiency of competitive equilibria in insurance markets with asymmetric information abstract this paper addresses the relationship between competitive equilibria and efficient allocations in an insurance market with asymmetric information using the definition of second best efficiency proposed by harris and townsend 1981 for environments characterized by informational assmmetry the efficiency properties of several proposed market equilibria are examined we find an analogue to the first optimality theorem a miyazaki wilson equilibrium always results in a second best allocation

eliciting temptation and self control through menu choices a lab experiment unlike present biased individuals agents who suffer self control costs as in gul and pesendorfer 2001 may choose to restrict their choice set even when they expect to resist temptation to identify these self control types i design an experiment in which the temptation was to read a story during a tedious task the identification strategy relies on a two step procedure first i measure commitment demand by eliciting subjects preferences over menus that did or did not allow access to the story i then implement preferences using a random mechanism allowing to observe subjects who faced the choice yet preferred commitment a quarter to a third of subjects can be classified as self control types according to their menu preferences when confronted with the choice virtually all of them behaved as they anticipated and resisted temptation these findings suggest that policies restricting the availability of tempting options could have larger welfare benefits than predicted by standard models of present bias

reservation wages expected wages and unemployment we model unemployment duration reservation and expected wages simultaneously for individuals not in work where wage expectations are identified via an exogenous policy shock the policy shock increased expected wages which were found to be positively associated with reservation wages

expectations life expectancy and economic behavior this study analyzes responses to a questionnaire designed to elicit subjective expectations and probabilities of survival people do extrapolate past improvements in longevity when they determine their subjective horizons and they are fully aware of levels of and movements within todays life tables the subjective distribution has greater variance than its actuarial counterpart and the subjective variance decreases with age the implications of these findings for optimal social security for the construction of annuities for the analysis of savings behavior and for evaluating lifetime earnings are discussed the data were collected in the united states from a sample of 411 white male economists and a sample of 363 white males in a midwestern smsa excerpt

behavioural characterizations of naivete for time inconsistent preferences we propose non parametric definitions of absolute and comparative naivete these definitions leverage ex ante choice of menu to identify predictions of future behaviour and ex post random choices from menus to identify actual behaviour the main advantage of our definitions is their independence from any assumed functional form for the utility function representing behaviour an individual is sophisticated if she is indifferent ex ante between retaining the option to choose from a menu ex post or committing to her actual distribution of choices from that menu she is naive if she prefers the flexibility in the menu reflecting a mistaken belief that she will act more virtuously than she actually will we propose two definitions of comparative naivete and explore the restrictions implied by our definitions for several prominent models of time inconsistency

a testable theory of imperfect perception we provide a new characterization of bayesian expected utility maximization the novel feature of the model is our separation of actions from prizes the signature of the resulting theory is the impossibility of raising utility by switching wholesale from one action to another we provide applications to robustness to the recovery of utility from choice data and to model

first movers non movers and social gains from subsidising entry in markets for nature based recreational goods abstract the importance of ecosystem services for mankind stresses the issue of identifying different institutional solutions to effectively secure their adequate provision much focus has been on services of the public good type and instruments like payments for environmental services we extend this work to consider the possible social gains from supporting development of new markets for nature based recreational goods which may alleviate negative externalities caused by congestion problems our three main questions are i why is there a lack of market development ii can there be social gains from intervention and supporting the development of such markets and iii if so then how could such intervention be best performed we use a two stage non cooperative bayesian simultaneous move game model and show that in spite of apparent potential first mover advantages in a developing market demand uncertainty and sunk costs may equally well result in widespread presence of non movers on the supplier side we show that social gains can be made from offering a subsidy towards the sunk costs analysing three possible subsidy schemes we show a that fixed costs may make rationing optimal b that sequential rationing does not necessarily dominate strict rationing because c the more subsidies are offered the larger each subsidy must be to induce participation and that d the longer a single agent on the market may keep market information to himself the better a non rationing scheme will perform relative to rationing schemes finally e subsidies for second mover entry may be optimal in some cases

determinants of demand for recreational walking trails in ireland abstract the purpose of this work is to explore how recreational walkers marginal willingness to pay for or travel to irish trails is affected by trail attributes we use principal components data reduction z score data normalization and ols regression analyses on two stated preference datasets covering 302 irish and foreign visitors and recreational experts across 15 sites in ireland between 2005 and 2010 findings reveal that endowment and infrastructure attributes emerge as primary influences affecting demand in particular flat or valley endowed trails and infrastructure including signage amenities and maps or leaflets positively affect demand additionally robustness checks suggest farmer access agreements may also be important on the other hand we find that mountain or hill forest and coastal or lake trails as well as income seem to be negatively associated with demand finally we are able to use these in sample results to extrapolate demand for a set of new relatively unimproved trails in an out of sample demand prediction exercise

multiple dimensions of private information evidence from the long term care insurance market we demonstrate the existence of multiple dimensions of private information in the long term care insurance market two types of people purchase insurance individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance ex post the former are higher risk than insurance companies expect while the latter are lower risk in aggregate those with more insurance are not higher risk our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence the results also suggest a general test for asymmetric information

redistribution by insurance market regulation analyzing a ban on gender based retirement annuities we illustrate how equilibrium screening models can be used to evaluate the economic consequences of insurance market regulation we calibrate and solve a model of the united kingdom s compulsory annuity market and examine the impact of gender based pricing restrictions we find that the endogenous adjustment of annuity contract menus in response to such restrictions can undo up to half of the redistribution from men to women that would occur with exogenous social security like annuity contracts our findings indicate the importance of endogenous contract responses and illustrate the feasibility of employing theoretical insurance market equilibrium models for quantitative policy analysis

can higher prices stimulate product use evidence from a field experiment in zambia the controversy over how much to charge for health products in the developing world rests in part on whether higher prices can increase use either by targeting distribution to high use households a screening effect or by stimulating use psychologically through a sunk cost effect we develop a methodology for separating these two effects we implement the methodology in a field experiment in zambia using door to door marketing of a home water purification solution we find evidence of economically important screening effects by contrast we find no consistent evidence of sunk cost effects jel c93 d12 i11 m31 o12

health and mortality delta assessing the welfare cost of household insurance choice we develop a pair of risk measures health and mortality delta for the universe of life and health insurance products a life cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of insurance products we estimate the model to explain the observed variation in health and mortality delta implied by the ownership of life insurance annuities including private pensions and long term care insurance in the health and retirement study for the median household aged 51 to 57 the lifetime welfare cost of market incompleteness and suboptimal choice is 3 2 of total wealth

a systems perspective on the interrelations between natural human made and cultural capital in recent years substantial progress has been achieved in the field of ecological economics for clarifying human nature interrelations the fundamental role of the life support functions of the environment odum 1975 for economic development and sustainability has entered from ecology into economics and has started to be theoretically as well as empirically analyzed this has in part given rise to the terminology of natural capital and human made capital in contrast to the assumptions of standard economic theory ecological economists regard human made capital and natural capital as fundamentally complementary natural capital and its derived goods and services are the preconditions or the basis for economic development it is not possible for human ingenuity to create human made capital without support from natural capital e g daly 1990 moreover it is not possible to approach sustainability by only focusing on these two factors natural capital and human made capital interrelations we need a third dimension what we refer to as cultural capital as well from a systems perspective we emphasize that the three types of capital are strongly interrelated and form the basis for guiding society towards sustainability

advantageous selection in insurance markets this article reverses the standard conclusion that asymmetric information plus competition results in insufficient insurance provision risk tolerant individuals take few precautions and are disinclined to insure but they are drawn into a pooling equilibrium by the low premiums created by the presence of safer more risk averse types taxing insurance drives out the reckless clients allowing a strict pareto gain this result depends on administrative costs in processing claims and issuing policies as does the novel finding of a pure strategy partial pooling subgame perfect nash equilibrium in the insurance market copyright 2001 by the rand corporation

valuing nature lessons learned and future research directions this paper critically reviews the literature on environmental valuation of ecosystem services across the range of global biomes the main objective of this review is to assess the policy relevance of the information encompassed by the wide range of valuation studies that have been undertaken so far published and other studies now cover most ecosystems with aquatic and marine contexts attracting the least attention there is also a predominance of single function valuation studies studies valuing multiple functions and uses and studies which seek to capture the before and after states as environmental changes take place are rare by and large it is the latter types of analyses that are most important as aids to more rational decision taking in ecosystem conservation versus development situations involving different stakeholders local national and global aggregate global scale estimates of ecosystems value are problematic given the fact that only marginal values are consistent with conventional decision aiding tools such as economic cost benefit analysis in general valuation data provide prima facie support for the hypothesis that net ecosystem service value diminishes with biodiversity and ecosystem loss balmford et al 2002 science 297 p 950 future research effort should include complementary research on multiple ecosystem services that seeks to capture the temporal disturbance profile and its causal factors the explicit recognition of multiple interdependent ecosystem services and values poses both conceptual and empirical research challenges it would serve to transform the practice of research in this sub field via the a priori assumption of multiple and inter dependent use instead of independent single use this line of reasoning can then be extended to the institutional arrangements that determine which values are captured new institutional processes and arrangements are probably required in order to best realise benefit streams from multiple ecosystem use and non use provision across a range of different stakeholders

asymmetric information in insurance general testable implications several recent articles on empirical contract theory and insurance have tested for a positive correlation between coverage and ex post risk as predicted by standard models of pure adverse selection or pure moral hazard we show here that the positive correlationproperty can be extended to general setups competitive insurance markets and cases where risk aversion is public we test our results on a french dataset our tests confirm that the estimated correlation is positive they also suggest the presence of market power

separating moral hazard from adverse selection and learning in automobile insurance longitudinal evidence from france the identification of information problems in different markets is a challenging issue in the economic literature this paper performs tests of residual asymmetric information in the french automobile insurance market for the 1995 1997 period this market is characterized by the presence of a regulated experiencerating scheme bonus malus contract choices are strongly associated with the bonus malus of policyholders we have access to longitudinal survey data with dynamic information both on claims and accidents we propose a causality test to distinguish pathways through which a positive correlation arises between contract choice and accidents we find evidence of moral hazard among a sub group of policyholders with significant driving experience 5 15 years we distinguish this moral hazard estimate from adverse selection and learning policyholders with less experience have a combination of learning and moral hazard whereas no residual information problem is found for policyholders with more than 15 years of experience

foundations for optimal inattention abstract this paper models an agent who has a limited capacity to pay attention to information and thus conditions her actions on a coarsening of the available information an optimally inattentive agent chooses both her coarsening and her actions by maximization of an underlying subjective expected utility preference relation net of a cognitive cost of attention the main result axiomatically characterizes the conditional choices of actions by an agent that are necessary and sufficient for her behavior to be seen as if it is the result of optimal inattention observing these choices permits unique identification of the agent s utility index the information to which she pays attention her attention cost and her prior whenever information is costly

preference heterogeneity and selection in private health insurance the case of australia a basic prediction of theoretical models of insurance is that if consumers have private information about their risk of suffering a loss there will be a positive correlation between risk and the level of insurance coverage we test this prediction in the context of the market for private health insurance in australia despite a universal public system that provides comprehensive coverage for inpatient and outpatient care roughly half of the adult population also carries private health insurance the main benefit of which is more timely access to elective hospital treatment like several studies on different types of insurance in other countries we find no support for the positive correlation hypothesis because strict underwriting regulations create strong information asymmetries this result suggests the importance of multi dimensional private information additional analyses suggest that the advantageous selection observed in this market is driven by the effect of risk aversion the ability to make complex financial decisions and income

private information and insurance rejections across a wide set of nongroup insurance markets applicants are rejected based on observable often high risk characteristics this paper argues that private information held by the potential applicant pool explains rejections i formulate this argument by developing and testing a model in which agents may have private information about their risk i first derive a new no trade result that theoretically explains how private information could cause rejections i then develop a new empirical methodology to test whether this no trade condition can explain rejections the methodology uses subjective probability elicitations as noisy measures of agents beliefs i apply this approach to three nongroup markets long term care disability and life insurance consistent with the predictions of the theory in all three settings i find significant amounts of private information held by those who would be rejected i find generally more private information for those who would be rejected relative to those who can purchase insurance and i show it is enough private information to explain a complete absence of trade for those who would be rejected the results suggest that private information prevents the existence of large segments of these three major insurance markets publication abstract

job competition and the wage curve longhi s job competition and the wage curve regional studies the wage curve literature consistently finds a negative relationship between regional unemployment rates and regional wages the most widely accepted theoretical explanations interpret the unemployment rate as a measure of job competition this paper proposes new ways of measuring job competition alternative to the unemployment rate and finds that the negative relationship still holds when job competition is measured following the job search literature while for men the wage impact of the theoretically based measures of job competition is rather similar to the wage impact of the unemployment rate for women the difference is substantial longhi s la competition pour l emploi et la courbe des salaires regional studies la documentation sur la courbe des salaires affirme systematiquement que le taux de chomage regional est en correlation faible avec les salaires regionaux les explications theoriques les plus recues considerent le taux de

family ties and the crowding out of long term care insurance insurance for long term care ltc has developed only moderately compared to other areas of welfare which has been explained variously as the result of market failures public misconceptions of the risk of ltc needs and intergenerational contracts this paper offers a cultural explanation for the limited ltc insurance development in europe it argues that family ties by enhancing informal care giving duties inhibit individuals expected public and private insurance coverage the empirical analysis of the paper exploits cross country and sub group variability of a representative database of european union member states containing records on ltc coverage and family structure drawing upon two measures of familistic culture or family ties we find a negative association between family ties and expected coverage of ltc for different sub samples these results are robust to a set of checks for different definitions of family ties and controls and for a sub sample of first and second generation migrants policy implications suggest that widespread expansion of ltc coverage might need to accommodate existing familistic cultural norms to avoid insurance crowding out

moral hazard and selection among the poor evidence from a randomized experiment not only does economic theory predict high risk individuals to be more likely to purchase insurance but insurance coverage is also thought to crowd out precautionary activities in spite of stark theoretical predictions there is conflicting empirical evidence on adverse selection and evidence on ex ante moral hazard is very scarce using data from the seguro popular experiment in mexico this paper documents patterns of selection on observables into health insurance as well as the existence of non negligible ex ante moral hazard more specifically the findings indicate that i agents in poor self assessed health prior to the intervention have all else equal a higher propensity to take up insurance and ii insurance coverage reduces the demand for self protection in the form of preventive care curiously however individuals do not sort based on objective measures of their health

evidence on adverse selection equilibrium signaling and cross subsidization in the insurance market the configuration of equilibrium in the market for automobile collision insurance is examined empirically by representing the premium deductible menu and the demand function as a standard hedonic system using contractual data from a representative insurer we estimate a reduced form hedonic premium equation and the inverse of the marginal bid equation for insurance coverage the data reveal an equilibrium with adverse selection and market signaling but lead us to reject the hypothesis that high risks receive contracts subsidized by low risks

adverse selection in insurance markets policyholder evidence from the u k annuity market in this paper we investigate the importance of adverse selection in insurance markets we use a unique data set consisting of all annuity policies sold by a large u k insurance company since the early 1980s to analyze mortality differences among individuals who purchased different types of policies we find systematic relationships between ex post mortality and annuity policy characteristics such as whether the annuity will make payments to the estate in the event of an untimely death and whether the payments from the annuity rise over time these mortality patterns are consistent with the presence of asymmetric information in the annuity market we find no evidence of substantive mortality differences however across annuities of different size even though models of insurance market equilibrium with asymmetric information would predict such differences we also find that the pricing of various features of annuity contracts is consistent with the self selection patterns we find in mortality rates our results therefore suggest that selection may occur across many specific features of insurance contracts and that the absence of selection on one contract dimension does not preclude its presence on others this highlights the importance of considering the detailed features of insurance contracts when testing theoretical models of asymmetric information

estimating welfare in insurance markets using variation in prices we provide a graphical illustration of how standard consumer and producer theory can be used to quantify the welfare loss associated with inefficient pricing in insurance markets with selection we then show how this welfare loss can be estimated empirically using identifying variation in the price of insurance such variation together with quantity data allows us to estimate the demand for insurance the same variation together with cost data allows us to estimate how insurers costs vary as market participants endogenously respond to price the slope of this estimated cost curve provides a direct test for both the existence and the nature of selection and the combination of demand and cost curves can be used to estimate welfare we illustrate our approach by applying it to data on employerprovided health insurance from one specific company we detect adverse selection but estimate that the quantitative welfare implications associated with inefficient pricing in our particular application are small in both absolute and relative terms

preference for flexibility and random choice we study a two stage model where the agent has preferences over menus as in dekel lipman and rustichini 2001 in the first period and then makes random choices from menus as in gul and pesendorfer 2006 in the second period both preference for flexibility in the first period and strictly random choices in the second period can be respectively rationalized by subjective state spaces our main result characterizes the representation where the two state spaces align so the agent correctly anticipates her future choices the joint representation uniquely identifies probabilities over subjective states and magnitudes of utilities across states we also characterize when the agent completely overlooks some subjective states that realize at the point of choice

property rights and sustainable nature tourism adaptation and mal adaptation in dalarna sweden and maine usa abstract tourism is viewed in many industrial nations as an environmentally friendly way to revitalize distressed rural economies and communities in the forest regions of dalarna and interior maine hopes are pinned on nature based tourism with the presumption that natural capital is underutilized this paper explores the potential and pitfalls of nature tourism as a basis for sustainable rural development in regions where most land is held privately but quasi open access for recreation has been either a right dalarna or a customary entitlement maine the paper applies theories of common pool resources and impure public goods to show that both property regimes are mal adapted for sustainable nature tourism limited exclusion combined with rivalness in land uses mis aligns incentives facing landowners tourists and recreation businesses short term effects include congestion reduced economic opportunity and depressed production of non recreational goods longer term effects include environmental degradation and weak incentives for value added investment tourism development is further impeded by a scale mis match between small ownerships and large efficient recreation management units the analysis suggests that sustainable nature tourism faces four land use challenges

revealed preference rational inattention and costly information acquisition we develop a revealed preference test for optimal acquisition of costly information the test encompasses models of rational inattention sequential signal processing and search we provide limits on the extent to which attention costs can be recovered from choice data we experimentally elicit state dependent stochastic choice data of the form the tests require in simple cases tests con rm that subjects adjust their attention in response to incentives as the theory dictates

dynamic logit with choice aversion we characterize a generalization of discounted logistic choice that incorporates a parameter to capture different views the agent might have about the costs and benefits of larger choice sets the discounted logit model used in the empirical literature is the special case that displays a preference for flexibility in the sense that the agent always prefers to add additional items to a menu other cases display varying levels of choice aversion where the agent prefers to remove items from a menu if their ex ante value is below a threshold we show that higher choice aversion as measured by dislike of bigger menus also corresponds to an increased preference for putting off decisions as late as possible

an empirical examination of information barriers to trade in insurance this paper uses direct evidence to evaluate whether asymmetric information is a barrier to trade in the largest market for private insurance in the world life insurance we report several findings that seem difficult to reconcile with the conventional theory of insurance under asymmetric information we conjecture that sellers may know their costs of production better than consumers in this market as in those for most other products

optimal information disclosure a sender randomly draws a prospect characterized by its profitability to the sender and its relevance to a receiver the receiver observes only a signal provided by the sender and accepts the prospect if his bayesian inference about the prospect s relevance exceeds his opportunity cost the sender s profits are typically maximized by partial information disclosure whereby the receiver is induced to accept less relevant but more profitable prospects switches by pooling them with more relevant but less profitable ones baits extensions include maximizing a weighted sum of sender profits and receiver surplus and allowing the sender to use monetary incentives

optimal mandates and the welfare cost of asymmetric information evidence from the u k annuity market much of the extensive empirical literature on insurance markets has focused on whether adverse selection can be detected once detected however there has been little attempt to quantify its welfare cost or to assess whether and what potential government interventions may reduce these costs to do so we develop a model of annuity contract choice and estimate it using data from the u k annuity market the model allows for private information about mortality risk as well as heterogeneity in preferences over different contract options we focus on the choice of length of guarantee among individuals who are required to buy annuities the results suggest that asymmetric information along the guarantee margin reduces welfare relative to a first best symmetric information benchmark by about 127 million per year or about 2 percent of annuitized wealth we also find that by requiring that individuals choose the longest guarantee period allowed mandates could achieve the first best allocation however we estimate that other mandated guarantee lengths would have detrimental effects on welfare since determining the optimal mandate is empirically difficult our findings suggest that achieving welfare gains through mandatory social insurance may be harder in practice than simple theory may suggest

an analysis of reservation wages for the economically inactive abstract data for the economically inactive are used to calculate elasticity estimates of the reservation wage and exit probability to state benefits and the arrival rate of job offers the inactive react in similar ways to benefit increases as the unemployed

the interaction of public and private insurance medicaid and the long term care insurance market a long tradition in public finance examines how public programs can crowd out private activ ity in areas as diverse as education savings and insurance among others these studies typi cally focus on aggregate economic implications particularly for government expenditures and national savings in this paper we demonstrate that crowd out can also have an important effect on individual welfare specifically we show that the provision of even very incomplete public insurance can crowd out more comprehensive private policies by imposing a large implicit tax on private insurance benefits thus potentially increasing overall risk exposure for individuals we examine the interaction of public and private insurance for one of the largest uninsured financial risks facing the elderly in the united states long term care expenditures at 135 bil lion in 2004 long term care expenditures represented over 8 5 percent of total health expendi tures or all ages or roughly 1 2 percent of gdp moreover real long term care expenditures are projected to triple over the next 35 years due to rising medical costs and the aging of the baby boomers only 10 percent of the elderly however have any private long term care insurance and one third of expenditures are paid for out of pocket congressional budget office cbo 1999 cbo 2004 brown and finkelstein 2007 one potential explanation for the small size of the private market is that the public insurance provided by medicaid may crowd out demand for private insurance medicaid was designed to provide long term care insurance for the poor elderly mark v pauly 1989 1990 has established the qualitative result that as an incomplete but publicly funded source of long term care insur ance medicaid has the potential to reduce substantially demand for private long term care insur ance even among the nonpoor our work builds on this insight by quantifying the magnitude of medicaid s crowd out effect and the incomplete nature of medicaid coverage we also illustrate the mechanism behind medicaid s crowd out effect and are therefore able to assess the likely impact of alternative policies on private insurance demand we develop a utility based model of a 65 year old risk averse individual who chooses an opti mal intertemporal consumption path in the presence of uncertainty about long term care expen ditures we calibrate the model using data on the distribution of long term care expenditure risk common state medicaid rules and the prices and coverage of typical private long term care insurance policies

dynamic inefficiencies in insurance markets evidence from long term care insurance we examine whether unregulated private insurance markets efficiently provide insurance against reclassification risk the risk of becoming a bad risk and facing higher premiums to do so we examine the ex post risk type of individuals who drop their long term care insurance contracts relative to those who are continually insured consistent with dynamic inefficiencies we find that individuals who drop coverage are of lower risk ex post than individuals who were otherwise equivalent at the time of purchase but who do not drop out of their contracts these findings suggest that dynamic market failures in private insurance markets can preclude the efficient provision of insurance against reclassification risk this abstract was borrowed from another version of this item

estimating risk preferences from deductible choice we develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts we account for adverse selection by modeling unobserved heterogeneity in both risk claim rate and risk aversion we find large and skewed heterogeneity in risk attitudes in addition women are more risk averse than men risk aversion exhibits a u shape with respect to age and proxies for income and wealth are positively associated with absolute risk aversion finally unobserved heterogeneity in risk aversion is greater than that of risk and as we illustrate has important implications for insurance pricing

governing snowmobilers in multiple use landscapes swedish and maine usa cases snowmobiling growth in north america and sweden creates challenges in governing the commons snowmobiling contributes to the economy of distressed rural regions and enhances residents quality of life but quasi open access to winter landscapes also breeds conflicts among snowmobilers with landowners with other recreationists and with environmentalists and ecosystem health common pool resource and impure public goods theories are used to interpret these conflicts and strategic interactions case studies in sweden and maine yield insights about conditions for sustainable management of multiple use landscapes when property rights are complex and stakeholders diverse the case studies utilize key informant interviews tourist surveys and a contingent valuation exercise to illustrate how innovative governance institutions complemented by infrastructure investments can mitigate conflicts re align incentives and internalize costs local self governance has evolved with state facilitation but without changes in fundamental property law three keys are trail agreements between snowmobile clubs and landowners clubs norm formation and rule enforcement and public private investment in quality trails these arrangements are strained by hot spot congestion free riding and unresolved conflicts with other recreationists d 2004 elsevier b v all rights reserved

intrinsic variability in group and individual decision making the paper examines the random preference model which can explain inherent variability of preferences in managerial and individual decision making and provides axiomatizations for the utility components of two such models differentiated by the structure of core preferences expected utility eu and betweenness like preferences we then examine the possibility of violations of weak stochastic transitivity for these models and for a model with core dual eu preferences such violations correspond to the existence of condorcet cycles and therefore the analysis has implications for managerial decision making and for majority rule voting the paper also investigates implications of its findings for two popular experimental settings this paper was accepted by james smith decision analysis

intrinsic preference for information abstract suppose agents value information not only to make contingent plans but also intrinsically how are such attitudes toward information related to attitudes toward risk we generalize the kreps porteus recursive expected utility model dropping both recursivity and expected utility there is a geometric analogy between risk and information we characterize intrinsic information loving in general by a substitution property analogous to multivariate risk loving and for smooth preferences by the convexity of gateaux derivatives even with recursivity preference for information does not imply expected utility we provide an example we examine connections between information loving and risk aversion for early and late resolving risks journal of economic literatureclassification numbers d80 d81

the reservation wage curve evidence from the uk we investigate the relationship between an individuals reservation wage and unemployment in the local area district largely unexplored in the literature this adds to the work which has examined the association between employee wages and unemployment the wage curve

competitive insurance markets with two unobservables i study a screening game in a competitive insurance market in which insurance customers differ with respect to both accident probability and degree of risk aversion it is shown that indifference curves of customers may cross twice thus the single crossing property does not hold when differences in risk aversion are sufficiently large firms cannot use policy deductibles to screen high risk customers types may be pooled in equilibrium or are separated by raising premiums above actuarially fair levels this leads to excessive entry of firms in equilibrium