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

claim timing and ex post adverse selection many health care treatments are not urgent and may be delayed if patients so choose because insurance coverage is typically determined by the treatment date individuals may have incentives to strategically delay treatments to minimize out of pocket costs the strategic delay of treatment a particular form of moral hazard can be an important source of subsequent adverse selection in which ex ante identical individuals select insurance coverage based on their differing accumulation of previously delayed treatments this article investigates these forces empirically in the context of the missing market for dental insurance using rich claim level data my analysis reveals that approximately 40 of individuals strategically delay dental treatments when incentivized to do so and this flexibility in delaying treatment can explain why the market for dental insurance has largely unraveled more generally the counterfactual analysis suggests features such as open enrolment periods and contracting on pre existing conditions may be helpful tools in overcoming adverse selection in insurance contexts where the timing of uncertainty is not contractible

time inconsistent preferences and the annuitization decision good news can involve difficult decisions for example winning a lottery jackpot can go along with the decision whether to have the jackpot paid out immediately as a lump sum or as periodic annual payments also when entering retirement most people face the decision whether they want their defined contribution account balance paid as a lump sum or to annuitize that amount the fact that people tend to choose the lump sum even if economic reasons suggest that they should choose the annuity is called the annuity paradox in a large online survey we find that people behave time inconsistent older people have a stronger tendency to choose the lump sum than younger people when they are asked to predict today what to choose when they retire this effect is considerably stronger for participants that answer simple time preference questions inconsistently our findings suggest to think about precommitment devices for the annuitization decision in the retirement case already at the time when the defined benefit plan is started

stock market returns and annuitization abstract i investigate the strong negative relation between recent stock returns and the annuitization of retirement savings using a novel data set with over 100 000 actual payout decisions after controlling for several standard explanations e g wealth effects i present evidence supporting naive beliefs and extrapolation from past returns the effect of recent returns on annuitization dramatically increases with age confirming that the elderly rely most heavily on recent information my results provide insights into how beliefs are formed in old age and have implications for the design of public policies seeking to promote annuitization

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

macroeconomic linkages taxes and subsidies in the u s agricultural sector lj ar division of agricultural sciences unlversily of califorj ha ma croecono nc linkages t xes and subsidies in tiie u s agr cuttural secl or by gordon c rausser james a chalfant h alan love and kostas g stamoulis tt r i f r in i jq lifor ia agricultura experiment station clmoation of j gricultural economics january 1986

productivity and unemployment over the business cycle abstract the low correlation between cyclical unemployment and productivity over the post war period hides a large sign switch in the mid 1980s from significantly negative the correlation became significantly positive using a search model of unemployment with nominal rigidities and variable labor effort i show that technology shocks can generate a positive unemployment productivity correlation whereas non technology shocks i e aggregate demand shocks tend to do the opposite in this context i identify two events that can quantitatively explain the increase in the correlation i a sharp drop in the volatility of non technology shocks in the mid 1980s and ii a decline in the response of productivity to non technology shocks which from procyclical became acyclical in the last 25 years

adverse selection and moral hazard in insurance can dynamic data help to distinguish a standard problem of applied contracts theory is to empirically distinguish between adverse selection and moral hazard we show that dynamic insurance data allow to distinguish moral hazard from dynamic selection on unobservables in the presence of moral hazard experience rating implies negative occurrence dependence individual claim intensities decrease with the number of past claims we discuss econometric tests for the various types of data that are typically available finally we argue that dynamic data also allow to test for adverse selection even if it is based on asymmetric learning jel d82 g22 c41 c14

fairness in uncertainty some limits and misinterpretations of actuarial fairness the recent proliferation of new data and technologies enables increasingly finer personalization of products and prices in every domain in insurance this revives and enlarges old debates around fairness that have never been completely settled we will argue that the commonly accepted actuarial fairness as based on the individual cost of risk derives in fact from a conflation while it indicates the average cost for a group of insureds from the perspective of an insurance company and is therefore sound from a business profitability viewpoint it is arguable whether it represents the fair price for the individual insured we first show in a historical perspective the intertwinement of conceptions of fairness with knowledge in order to point to the alternative to actuarial fairness for insurance we then describe the intrinsic difference between the insured and the insurer or portfolio manager when underwriting an insurance contract finally we build on this distinction to discuss the meaning of fairness in insurance prices we thus hope to re center the debate around insurance fairness on its underlying solidarity mechanisms rather than technical and actuarial considerations

cohort mortality risk or adverse selection in annuity markets abstract we show that tests for adverse selection in annuity markets using prices are not identified within the uk annuity market different annuity products create the potential for a rothschild stiglitz separating equilibrium as different risk types could choose different annuities empirical analyses using the money s worth suggest that prices are indeed consistent with this explanation however we show that this pattern of annuity prices would also result from the actions of regulated annuity providers who must reserve against cohort mortality risk annuity products that might attract different consumer risk types also have different risks for the provider

how deep is the annuity market participation puzzle using microeconomic data for the united kingdom we analyze the empirical determinants of voluntary annuity market demand we find that annuity market participation increases with financial wealth life expectancy and education and decreases with other pension income and a possible bequest motive for surviving spouses we then show that these empirically motivated determinants of annuity market participation have the same quantitatively important effects in a life cycle model of annuity and life insurance demand saving and portfolio choice moreover reasonable preference parameters predict annuity demand levels comparable to the data for stockholders a strong bequest motive can simultaneously generate balanced portfolios and low annuity demand

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

can markets stimulate rights on the alienability of legal claims the alienability of legal claims holds the promise of increasing access to justice and fostering development of law i develop a principal agent framework where litigation funders provide expertise in reducing uncertainty in agents disutility of production the model leads to the counterintuitive prediction that litigation funders prefer cases with novel issues and social surplus is positively correlated with legal uncertainty consistent with the model court backlog court expenditures and a slowing in average time to completion are associated with third party funding cases with third party funding receive more citations and are reversed less often than comparable cases without such arrangements

survival ambiguity and welfare abstract nearly all life cycle models adopt yaari s 1965 assumption that individuals know the survival probabilities that they face given that an individual s exact survival probabilities are likely unknown we explore the implications of relaxing this assumption if there is no annuity market then the welfare cost of survival ambiguity is large and regressive ambiguity neutral individuals would pay as much as 1 of total lifetime consumption for immediate resolution of ambiguity and the bottom income quintile is 4 times worse off than the top quintile alternatively with the availability of competitive annuity contracts survival ambiguity is welfare improving because it allows competitive insurance companies to pool risk across survival types even though social security and annuities share some properties social security does not help to hedge survival ambiguity

okun s law and productivity innovations a long tradition in macroeconomics dating back to arthur okun 1965 and walter oi 1962 regards cyclical productivity fluctuations as an artifact a residual generated from the incomplete and lagged response of employment and labor hours to demand driven fluctuations in real output in okun s version a one percent decline in output relative to trend is divided up into a reduction of 1 3 point in productivity and 2 3 point in aggregate hours the latter is further subdivided into a reduction of 1 3 point in the employment rate with the remaining adjustment taking the form of lower hours per employee and in the labor force participation rate hereafter lfpr yet this tradition of regarding cyclical productivity fluctuations as a byproduct of demand driven output cycles has been almost forgotten over the past three decades as a result of widespread adoption of the real business cycle rbc model in which productivity shocks are treated as exogenous as unexplained as unrelated to aggregate demand and as the sole driver of business cycles even in the more enlightened modern macro work on dynamic stochastic general equilibrium models aggregate demand and sticky prices have reappeared but most recent papers still include an autonomous technology shock as one of several causes of short term business cycle fluctuations revisiting and rethinking the business cycle

okun s law theoretical foundations and revised estimates okun s law has been accepted as an empirical regularity that predicts a 3 percentage point increase in output for every 1 point reduction in the unemployment rate but only because other facts such as weekly hours induced labor supply and productivity tend to rise as well when output gaps are estimated for the u s economy with a production function approach using two different data sets for potential output and nairu it is found that the marginal contribution of a 1 point reduction in unemployment is only about two thirds percent increase in output changes in weekly hours and capacity utilization have independent effects on the output gap copyright 1993 by mit press

structural reform of social security governments around the world have enacted or are currently considering fundamental structural reforms of their social security pension programs the key feature in these reforms is a shift from a pure pay as you go tax financed system in which taxes on current workers are primarily distributed to current retirees to a mixed system that combines pay as you go benefits with investment based personal retirement accounts this paper discusses how such a mixed system could work in practice and how the transition to such a change could be achieved it then analyzes the economic gains that would result from shifting to a mixed system i turn next to the three problems that critics raise about any investment based plan administrative costs risk and income distribution finally i comment on some of the ad hoc proposals for dealing with the financial problem of social security without shifting to an investment based system

preference heterogeneity and insurance markets explaining a puzzle of insurance the textbook approach to insurance markets emphasizes the role of private information about risk in determining who purchases insurance in the classic adverse selection model of michael rothschild and joseph stiglitz 1976 individu als with higher expected claims buy more insur ance than those with lower expected claims who may be out of the market entirely this basic prediction of asymmetric information models of a positive correlation between insurance cov erage and accident occurrence has been shown to be robust to a variety of extensions to the stan

modeling competition and market equilibrium in insurance empirical issues in the last decade or so numerous papers have been devoted to empirical investigations based on contract theory many contributions use insurance data and specifically files pro vided by firms a typical paper would analyze the relationship between individual characteris tics the contracts chosen and the corresponding outcome as measured by claims the natural next step in this research agenda is to model empirically market equilibrium on insurance markets empirical models of com petitive insurance markets are important in many respects first such models are an indis pensable first step for the empirical analysis of existing markets the discussion of optimal pricing strategies or the definition of new insur ance contract would greatly benefit from such models from a policy perspective the design of any regulation requires estimating its likely impact on the market allocation for instance while a ban on specific pricing options based say on gender or age is often advocated on ethi cal grounds a precise assessment of its impact on insurance markets is needed before any deci sion is made and an empirical model is required to provide such an assessment

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

is there adverse selection in life insurance markets adverse selection theory predicts people with a high risk of death are more likely to own life insurance using a unique data set merging administrative and survey records we test this theory and find the opposite people with high death risk are less likely to own life insurance we postulate advantageous selection and price discrimination swamp adverse selection in individual life insurance markets to determine which effect is more powerful we analyze group life insurance markets where insurance companies cannot price discriminate as well as in individual markets our data suggest that price discrimination has a stronger effect than advantageous selection jel d8 g1 i1

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

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

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

optimal choice of health and retirement in a life cycle model abstract we examine within a life cycle model the simultaneous choice of health care and retirement together with consumption health tends to have an impact on retirement through morbidity determining earnings and the disutility of work and through longevity determining the need to accumulate retirement wealth conversely the age of retirement drives the demand for health care through the value of survival and the value of morbidity reductions we characterise the optimal relationship between health expenditure and retirement and apply our model to analyse the effects of moral hazard in the annuity market while moral hazard always induces excessive health investments and an excessive duration of working life it also triggers an excessive level of consumption if the impact of health on the disutility of work is sufficiently large we examine a transfer scheme and mandatory retirement as policies towards curtailing moral hazard numerical analysis illustrates the role of moral hazard in shaping the life cycle allocation

life expectancy heterogeneity and the political support for collective annuities individuals differing in productivity and life expectancy vote over the size and type of a collective annuity its type is represented by the fraction of the contributive bismarckian component based on the worker s past earnings as opposed to the non contributive beveridgean part based on average contribution the equilibrium collective annuity is either a large mostly bismarckian program a smaller pure beveridgean one in accordance with empirical evidence or nil a larger correlation between longevity and productivity or a larger average life expectancy both make the equilibrium collective annuity program more beveridgean although at the expense of its size

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

are lemons really hot potatoes abstract we model the hazard rate for car ownership spells our model allows us to distinguish among different types of adverse selection effects by observing the type of unobserved heterogeneity across owners of the same car our empirical results strongly suggest that there is a lemons effect because there is significant unobserved heterogeneity however they also suggest that the lemons effect is caused by the first owner rather than the manufacturer had the manufacturer created the lemon the unobserved heterogeneity would be positively correlated over all owners of a given car instead we observe a negative correlation between the unobserved heterogeneity term for the first owner and the unobserved heterogeneity term for subsequent owners

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

human capital risk contract enforcement and the macroeconomy we use data from the survey of consumer finance and survey of income program participation to show that young households with children are under insured against the risk that an adult member of the household dies we develop a tractable macroeconomic model with human capital risk age dependent returns to human capital investment and endogenous borrowing constraints due to the limited pledgeability of human capital limited contract enforcement we show analytically that consistent with the life insurance data in equilibrium young households are borrowing constrained and under insured against human capital risk a calibrated version of the model can quantitatively account for the life cycle variation of life insurance holdings financial wealth earnings and consumption inequality observed in the us data our analysis implies that a reform that makes consumer bankruptcy more costly like the bankruptcy abuse prevention and consumer protection act of 2005 leads to a substantial increase in the volume of both credit and insurance

experimental identification of asymmetric information evidence on crop insurance in the philippines abstract i study asymmetric information in crop insurance in the philippines using a two level randomized field experiment and incentivized preference elicitation in this first experimental study of moral hazard in non health insurance preventable damages double on randomly insured plots among farmers with high trust in the insurance provider farmers prefer insurance on plots that are at risk of floods and crop diseases a sign of classic adverse selection and plots that are far away from home a sign of selection on anticipated moral hazard behavior resulting in 72 higher payouts on preferred plots overcoming these challenges requires leveraging new technologies

aggregate consumption function and public social security the first time series study for a developing country turkey this article is the first attempt in the literature to investigate the effects of public social security on aggregate consumption in a time series setting for a developing country turkey that has one of the most generous social security systems in the organization for economic cooperation and development oecd region in order to quantify the social security variable this article uses the social security wealth ssw series calculated for turkey in a separate study this study indicates that ssw is the largest part of the household wealth in turkey and therefore should not be ignored in the aggregate consumption studies the results show that its effect on consumption is positive and robust

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

imperfect competition in selection markets policies to correct market power and selection can be misguided when these forces coexist we build a model of symmetric imperfect competition in selection markets that parameterizes the degree of market power and selection we use graphical price theoretic reasoning to characterize the interaction between these forces using a calibrated model of health insurance we show that the risk adjustment commonly used to offset adverse selection can reduce coverage and social surplus conversely in a calibrated model of subprime auto lending realistic levels of competition can generate an oversupply of credit implying that greater market power is desirable

optimal annuitization with stochastic mortality and correlated medical costs the conventional wisdom since yaari 1965 is that households without a bequest motive should fully annuitize their investments numerous frictions do not break this sharp result we modify the yaari framework by allowing a household s mortality risk itself to be stochastic due to health shocks a lifetime annuity still helps to hedge longevity risk but the annuity s remaining present value is correlated with medical costs such as those for nursing home care thereby reducing annuity demand even without ad hoc liquidity constraints we find that most households should not hold a positive level of annuities and many should hold negative amounts jel d14 d82 g23 i12 j14 j26

uncertainty resolution and the timing of annuity purchases abstract this paper considers the question of why the annuity market is thin a model is presented in which consumers have the option of purchasing annuities before discovering their survival probability they can then recontract the initial choice after the resolution of this form of uncertainty it is shown that consumers purchase insurance against their own survival probability type at a very young age and do not undertake further transactions this characterization is then used to analze the effects of introducing future income uncertainty and to investigate the trade off between old age insurance motive and portfilio flexibility

which early withdrawal penalty attracts the most deposits to a commitment savings account previous research has shown that some people voluntarily use commitment contracts that restrict their own choice sets we study how people divide money between two accounts a liquid account that permits unrestricted withdrawals and a commitment account that is randomly assigned in a between subject design to have either a 10 early withdrawal penalty or a 20 early withdrawal penalty or not to allow early withdrawals at all i e an infinite penalty when the liquid account and the commitment account pay the same interest rate higher early withdrawal penalties attract more commitment account deposits this pattern is predicted by the hypothesis that some participants are partially or fully sophisticated present biased agents such agents perceive that higher penalties generate greater scope for commitment by disincentivizing penalized early withdrawals the experiment also shows that when the commitment account pays a higher interest rate than the liquid account the positive empirical slope relating penalties and commitment deposits is flattened suggesting that naive present biased agents or agents with standard exponential discounting are also in our sample across all of our experimental treatments higher early withdrawal penalties on the commitment account sometimes increase and never reduce allocations to the commitment account

life cycle asset allocation with annuity markets abstract this paper derives the optimal consumption and portfolio choice pattern over the life cycle for households facing uninsurable labor income risk ruin risk stochastic capital markets and uncertain lifetime our model posits a dynamic utility maximizer with crra and epstein zin preferences who has access to liquid stocks bonds and illiquid life annuities we show that a considerable fraction of wealth is gradually annuitized until retirement and beyond to skim the mortality credit the remaining liquid wealth is mainly invested in stocks to compensate for riskless investment in life annuities the model allows us to assess the economic importance of common explanations for the empirically low annuity demand by analyzing participations rates annuitization fractions and welfare effects

effects of the monetary macro economy on canadian agricultural prices this paper examines the importance of monetary macro economic variables on canadian agricultural prices using vector autoregressive var modeling the research results suggest that u s monetary macro economic policy as represented by the u s world exchange rate is the most significant monetary factor influencing canadian agricultural price instability the paper also examined how agricultural prices and manufactures prices respond to a monetary shock the results suggest that agricultural prices respond more quickly in the short run but that manufactures prices catch up in later periods this conclusion supports bordos contract length hypothesis and frankel s overshooting hypothesis it does not support tweeten s cost price squeeze hypothesis

can the baseline search and matching model quantitatively explain okun s law okun s law is an empirically observed negative relationship between changes in an economy s unemployment rate and its growth rate of output the baseline search and matching model with stochastic labour productivity fails to match the okun s coefficient because it generates a too low unemployment volatility and a too high correlation between labour productivity and unemployment the model is capable of matching the coefficient if it is extended with an addition of employment separation shocks plus a high calibrated value of nonmarket activities this article also shows that changes in the stochastic properties of exogenous shocks could explain changes in the okun s coefficient in the great moderation 1984 2007

impacts of trade and macroeconomic linkages on canadian agriculture implications of trade and macroeconomic policies on the performance of the canadian agricultural sector were analyzed using a structural econometric model results indicated that had canada been more integrated with the world economy its volume of trade would have been 3 higher than its actual level and much greater price incentives for agriculture would have occurred

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

economic determinants of workers retirement decisions the landscape for older workers has changed dramatically in recent decades governments have made cuts to public pension programs private pensions have shifted from defined benefit to defined contribution plans equity and housing markets have been unusually volatile and workers have experienced declining morbidity and mortality at the same time the labor force participation rate for older men and women has been rising over the past two decades implying later retirement are these phenomena related this paper reviews the large and growing body of literature exploring the economic determinants of workers retirement decisions including public and private pensions wealth and savings health and health insurance and labor demand

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

price elasticity of expenditure across health care services policymakers in countries around the world are faced with rising health care costs and are debating ways to reform health care to reduce expenditures estimates of price elasticity of expenditure are a key component for predicting expenditures under alternative policies using unique individual level data compiled from administrative records from the chilean private health insurance market i estimate the price elasticity of expenditures across a variety of health care services i find elasticities that range between zero for the most acute service appendectomy and 2 08 for the most elective psychologist visit moreover the results show that at least one third of the elasticity is explained by the number of visits the rest is explained by the intensity of each visit finally i find that high income individuals are five times more price sensitive than low income individuals and that older individuals are less price sensitive than young individuals

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

flexible parametric estimation of duration and competing risk models in this paper we specify and estimate a flexible parametric proportional hazards model the model specification is flexibly parametric in the sense that the baseline hazard is non parametric while the effect of the covariates takes a particular functional form we also add parametric heterogeneity to the underlying hazard model specification we specify a flexible parametric proportional competing risks model which permits unrestricted correlation among the risks unemployment duration data are then analysed using the flexible parametric duration and competing risks specifications we find an important effect arising from the exhaustion of unemployment insurance and significantly different hazards for the two types of risks new jobs and recalls

capital accumulation and uncertain lifetimes with adverse selection this paper examines the implications of adverse selection in the private annuity market for the pricing of private annuities and the consequent effects on constrption and bequest behavior with privately known heterogeneous mortality probabilities adverse selection causes the rate of return on private annuities to be less than the actuarially fair rate based on population average mortality however a fully funded social security system with compulsory participation can offer an implied rate of return equal to the actuarially fair rate based on population average mortality thus since social security offers a higher rate of return than private annuities consumers cannot completely offset the effects of social security by transacting in the private annuity market using an overlapping generations model with uncertain lifetimes we demonstrate that the introduction of actuarially fair social security reduces the steady state rate of return on annuities and raises the steady state levels of average bequests and average consumption of the young the steady state national capital stock rises or falls according to the strength of the bequest motive this abstract was borrowed from another version of this item

macroeconomic determinants of the world trade disputes this article is whether and how the world macroeconomic environments influence the world trade disputes we use two pronged approach first we try to answer the question whether and how global macroeconomic environments are attached to the count of the world trade disputes even if the traditional literature captures it at the national level global picture needs to be completed the second question we address is that given the set of trade dispute initiating countries whether and how differently high middle and low income countries respond to their macroeconomic environments in their decision makings of trade disputes initiations the universe in the second question is a selected set of the filing countries only not all countries on this planet one can capture the behaviours of the countries involved in the trade disputes under certain macroeconomic circumstances the period is from 1995 to 2008 covering all records of trade disputes since the birth of the world trade organization wto

non exclusive competition in the market for lemons in order to check the impact of the exclusivity regime on equilibrium allocations we set up a simple akerlof like model in which buyers may use arbitrary taris under exclusivity we obtain the zero profit separating riley rothschilds stiglitz allocation under non exclusivity there is also a unique equilibrium allocation that involves a unique price as in akerlof 1970 these results can be applied to insurance in the dual model in yaari 1987 and have consequences for empirical tests of the existence of asymmetric information

economic determinants of workers retirement decisions economic determinants of workers retirement decisions the landscape for older workers has changed dramatically in recent decades governments have made cuts to public pension programs private pensions have shifted from defined benefit to defined contribution plans equity and housing markets have been unusually volatile and workers have experienced declining morbidity and mortality at the same time the labor force participation rate for older men and women has been rising over the past two decades implying later retirement are these phenomena related this paper reviews the large and growing body of literature exploring the economic determinants of workers retirement decisions including public and private pensions wealth and savings health and health insurance and labor demand

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

old age longevity and mortality contingent claims this paper analyzes the savings and longevity impacts of mortality contingent claims defined here as income measures such as annuities and life insurance under which earned income is contingent on the length of one s life the postwar increase in mandatory annuity and life insurance programs as well as the rapid increase in the life expectancy of older ages motivates a better understanding of the incentive effects that mortality contingent claims have on longevity related behavior we claim that these incentives in often alter the standard conclusions obtained about old age support when mortality is treated exogenously in particular we argue that annuities involve moral hazard effects that increase longevity and among other things introduce a positive interaction between public programs for health care and income support for the elderly programs that have grown enormously in developed countries

the effects of access to health insurance evidence from a regression discontinuity design in peru in many countries large parts of the population do not have access to health insurance peru has made an effort to change this in the early 2000s the institutional setup gives rise to the rare opportunity to study the effects of health insurance coverage exploiting a sharp regression discontinuity design we find large effects on utilization that are most pronounced for the provision of curative care individuals seeing a doctor leads to increased awareness about health problems and generates a potentially desirable form of supplier induced demand they decide to pay themselves for services that are in short supply

paying for health insurance the trade off between competition and adverse selection we use data on health plan choices by employees of harvard university to compare the benefits of insurance competition with the costs of adverse selection moving to a voucher type system induced significant adverse selection with a welfare loss of 2 to 4 percent of baseline spending but increased competition reduced harvard s premiums by 5 to 8 percent the premium reductions came from insurer profits so while harvard was better off the net effect for society was only the adverse selection loss adverse selection can be minimized by adjusting voucher amounts for individual risk we discuss how such a system would work governments are increasingly turning to market forces as a way to limit the cost of social insurance traditionally social insurance programs were operated as nonmarket goods governments mandated participation in a central program collected revenues to finance the program and ran the insurance system there was no role for competition among suppliers in providing the basic benefit as the costs of social insurance have increased however the centralized model of social insurance is coming under increasing strain in the united states for example recent proposals have called for replacing the medicare program with a health care voucher for the elderly aaron and reischauer 1995 cutler 1996 the voucher would guarantee people a basic insurance plan but the plans would be privately run competition among plans would generate plan premiums and enrollments similarly longstanding proposals for social security reform have called for replacing the current system with a system of individual accounts where people would make saving investment and annuitization decisions on their own advisory council on social security 1996 feldstein 1996 the trend is not just domestic in the united kingdom the national health service has moved to encourage more competition in recent years with the establishment of hospital trusts that bid for patients and partially fixed payments to physicians

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

the cost of annuities implications for saving behavior and bequests the fact that most elderly u s individuals maintain a flat age wealth profile rather than buy individual life annuities contradicts the standard life cycle consumption model average expected yields on individual life annuities in the united states during 1968 1983 were lower by 4 21 6 13 percent or 2 43 4 35 percent after allowing for adverse selection than yields on plausible alternative investments simulations of a model of saving and portfolio allocation show that during the early retirement years such yield differentials can account for the absence of annuity purchases even without a bequest motive at older ages the combination of such yield differentials and a bequest motive can do so it is common experience that as we grow older and nearer to eternity we become more not less anxious about money derek brewer chaucer and his world p 213

the life insurance market asymmetric information revisited abstract this paper finds evidence for the presence of asymmetric information in the life insurance market a conclusion contrasting with the existing literature in particular we find a significant and positive correlation between the decision to purchase life insurance and subsequent mortality conditional on risk classification individuals who died within a 12 year time window after a base year were 19 more likely to have taken up life insurance in that base year than were those who survived the time window moreover as might be expected when individuals have residual private information we find that the earlier an individual died the more likely she was to have initially bought insurance the primary factor driving the difference between our and the prior literature s findings is that we focus on a sample of potential new buyers rather than on the entire cross section to address the sample selection problem induced by potential mortality differences between those with and those without coverage

voluntary public health insurance we look at the consequences of allowing public health insurance puhi to be voluntary when its coverage can be supplemented in the market puhi redistributes with respect to risk and income and the market is affected by adverse selection we argue that making puhi voluntary does not lead to its collapse since individuals always participate in it additionally in some cases a voluntary puhi scheme increases market efficiency because participation in it sends a signal to private insurers of an individual s health risk type the welfare consequences depend on the status quo if in the status quo no political support exists for a compulsory puhi making it voluntary constitutes a pareto improvement and in some cases all individuals are strictly better off if instead the status quo implements compulsory puhi making it voluntary then results in less redistribution

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

demographic change and the uk savings rate microeconomic data are used to explore the effects of a changing age structure on the uk s aggregate personal savings rate the findings suggest that changes to the population s age structure have had detectable sustained but relative to the yearly changes observed in the savings rate over the previous century modest effects on aggregate personal sector savings it is estimated that the projected changes to the uk s age structure over the next 40 years are likely to raise the uk s savings rate but by no more than two percentage points no basis is found for the view that the aggregate savings rate will decline as a result of the anticipated ageing of the uk population

the effect of price on switching among health plans a recent policy change by the university of california uc provides a unique natural experiment for investigating the sensitivity of consumers to health plan premiums when the uc moved to a policy of limiting its contribution to the cost of the least expensive plan out of pocket premiums increased for roughly one third of uc employees we examine the extent to which uc employees switched plans in response to this change in premiums our results indicate a strong response individuals facing premium increases of less than 10 were roughly 5 times as likely to switch plans as those whose premiums remained constant

the balance between defined benefit defined contribution and state provision we examine the possible consequences of the increasing shift from defined benefit to defined contribution arrangements for private pensions whilst much analysis has focused on the possible distribution of investment and job tenure risk we point out the additional role for issues relating to adverse selection and to retirement incentives these issues are illustrated using empirical evidence from the united kingdom where the fact that private pensions are an alternative as opposed to a supplement to earnings related state pension provision makes the effects particularly salient jel i38 j32 d91

new evidence on the money s worth of individual annuities this paper presents new information on the expected present discounted value of payouts on individual life annuities the annuity we examine is the single premium immediate life annuity an insurance product that pays out a nominal level sum as long as the covered person lives in exchange for an initial lump sum premium this annuity offers protection against the risk of someone outliving his saving given uncertainty about longevity for reasonable estimates of behavioral parameters we calculate that individual annuities are currently priced so that retirees without bequest motives should find these policies of substantial value in configuring their portfolios to smooth retirement consumption we also find that the expected present discounted value of payouts relative to the initial cost of the annuity has increased over the last decade these findings bear on the policy debate regarding the role of individual choice and self reliance in retirement planning this abstract was borrowed from another version of this item

testing for asymmetric information in the viager market a viager real estate transaction consists in selling a property in return for a down payment and a rent life annuity that the buyer has to pay until the seller dies this paper tests for the presence of asymmetric information in this market thanks to a no arbitrage condition buyers must be indierent between purchasing on the standard and viager market we identify the type of the seller as a sum of weighted death probabilities by comparing these sums with analogously defined national level sums we can check whether viager sellers have the same survival distribution as individuals in the population we then develop a model for a viager sale and derive testable predictions under symmetric and asymmetric information our test for asymmetric information consists in regressing the contract parameters down payment and rent on the inferred type of the seller and comparing the estimates with the predicted outcomes notarial data are used on transactions in paris between 1992 and 2001 we test and accept that our no arbitrage condition is empirically satisfied we find that sellers do not have the same survival distributions as comparable persons in the population and hence they have information about their death probabilities the hypothesis that information is symmetrically distributed between buyers and sellers is accepted this highlights that the information about the seller s survival prospects is no longer private when the contract is signed

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