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

are ghettos good or bad spatial separation of racial and ethnic groups may theoretically have positive or negative effects on the economic performance of those groups we examine the effects of segregation on outcomes for blacks in schooling employment and single parenthood we find that blacks in more segregated areas have significantly worse outcomes than blacks in less segregated areas we control for the endogeneity of location choice using instruments based on political factors topographical features and residence before adulthood a one standard deviation decrease in segregation would eliminate one third of the black white differences in most of our outcomes

the economic integration of forced migrants evidence for post war germany the flight and expulsion of germans from eastern europe after world war ii constitutes one of the largest forced population movements in history we analyse the economic integration of these migrants and their offspring in west germany a quarter century after displacement first generation migrants still tend to fare worse economically displaced agricultural workers however exhibit higher incomes than comparable natives as displacement caused large scale transitions out of low paid agriculture differences in economic outcomes of second generation migrants resemble those of the first generation

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

the economics of forced migration abstract this article reviews the economics literature on the impacts of forced migration the literature is divided into two parts impacts on forced migrants and impacts on host communities studies exploring the impact of forced migration due to wwii suggest that the long term impact is often positive the literature for developing countries suggests that there are serious consequences of forced migration for those forced to migrate these consequences range from worse labour market outcomes to less consumption smoothing the impact on host communities seems to be mixed and there are winners and losers the article provides suggestions for future research

empirical implications of alternative models of firm dynamics abstract this paper considers two models of firm behavior that allow for heterogeneity among firms idiosyncratic or firm specific sources of uncertainty and discrete outcomes exit and or entry both the characteristics of firm level panel data sets and the nature of the questions we characteristically ask of them imply that models with these features are likely to underlie most detailed empirical work on microdata sets the models we consider are a bayesian learning model due to jovanovic 20 and a model of research and exploration due to ericson and pakes 11 the paper provides a simple set of empirical procedures to help determine which if either of these two models might be appropriate for alternative data sets we conclude by checking for the implications of the two models on an eight year panel of wisconsin firms the results indicate that one model is consistent with the data on manufacturing firms while the other is consistent with the data on retail trade journal of economic literature classification numbers c52 l60 l80

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

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 in insurance markets theory and empirics in pictures government intervention in insurance markets is ubiquitous and the theoretical basis for such intervention based on classic work from the 1970s has been the problem of adverse selection over the last decade empirical work on selection in insurance markets has gained considerable momentum this research finds that adverse selection exists in some insurance markets but not in others and it has uncovered examples of markets that exhibit advantageous selection a phenomenon not considered by the original theory and one that has different consequences for equilibrium insurance allocation and optimal public policy than the classical case of adverse selection advantageous selection arises when the individuals who are willing to pay the most for insurance are those who are the most risk averse and so have the lowest expected cost indeed it is natural to think that in many instances individuals who value insurance more may also take action to lower their expected costs drive more carefully invest in preventive health care and so on researchers have taken steps toward estimating the welfare consequences of detected selection and of potential public policy interventions in this essay we present a graphical framework for analyzing both theoretical and empirical work on selection in insurance markets this graphical approach provides both a useful and intuitive depiction of the basic theory of selection and its implications for welfare and public policy as well as a lens through which one can understand the ideas and limitations of existing empirical work on this topic

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

hips and hearts the variation in incentive effects of insurance across hospital procedures the separate identification of effects due to incentives selection and preference heterogeneity in insurance markets is the topic of much debate in this paper we investigate the presence and variation in moral hazard across health care procedures the key motivating hypothesis is the expectation of larger causal effects in the case of more discretionary procedures the empirical approach relies on an extremely rich and extensive dataset constructed by linking survey data to administrative data for hospital medical records using this approach we are able to provide credible evidence of large moral hazard effects but for elective surgeries only

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

health insurance without single crossing why healthy people have high coverage standard insurance models predict that people with high risks have high insurance coverage it is empirically documented that people with high income have lower health risks and are better insured we show that income differences between risk types lead to a violation of single crossing in an insurance model where people choose treatment intensity we analyse different market structures and show the following if insurers have market power the violation of single crossing caused by income differences and endogenous treatment choice can explain the empirically observed outcome our results do not rely on differences in risk aversion between types

a microeconometric model of the demand for health care and health insurance in australia this paper develops a model for interdependent demand for health insurance and health care under uncertainty to throw light on the issue of insurance induced distortions in the demand for health care services the model is used to empirically analyse the determinants of the choice of health insurance type and seven types of health care services using micro level data from the 1977 78 australian health survey econometric implementation of the model involves simultaneously issues of discreteness of choice selectivity and stochastic dependence between health insurance and utilization health status appears to be more important in determining health care service use than health insurance choice while income appears to be more important in determining health insurance choice than in determining health care service use for a broad range of health care services both moral hazard and self selection are found to be important determinants of utilization of health care services

agricultural outputs and conflict displacement evidence from a policy intervention in rwanda abstract in 1997 rwanda introduced a resettlement policy for refugees displaced during previous conflicts i exploit geographic variation in the speed of implementation of this policy to investigate the impact of conflict induced displacement and the resettlement policy on household agricultural output and on skill spillover mechanisms between returnees and stayers i find that returns to on farm labor are higher for returnees relative to stayers although the evidence suggests that the policy contributed little additional effect to this differential more speculatively these differentials suggest that upon return from conflict induced exile returnees are more motivated to increase their economic performance

war and institutions new evidence from sierra leone scholars of economic development have argued that war can have adverse impacts on later economic performance war destroys physical capital and infrastructure and disrupts human capital accumulation and it may also damage institutions by creating political instability destroying the social fabric and endangering civil liberties world bank 2003 understanding war s impact on development is particularly important for sub saharan africa where two thirds of all nations suffered from armed conflict during the 1980s and 1990s the proliferation of armed conflict in the world s poorest region begs the question of what role conflict may be playing in africa s disappointing economic performance yet the net long run effects of war are ambiguous from the point of view of economic theory to the extent that war impacts are limited to the destruction of capital the neoclassical model predicts rapid economic growth postwar converging back to steady state growth several recent papers that study war impacts including in japan donald r davis and david e weinstein 2002 and vietnam miguel and gerard roland 2005 find few persistent local impacts of u s bombing with heavily bombed areas experiencing rapid recovery to prewar population and economic trends this is consistent with the neoclassical model if war s main consequence is to destroy capital war could also affect long run growth either positively or negatively by modifying the scale parameter in the neoclassical growth model for example while the world bank 2003 argues that war has adverse institutional consequences charles h tilly shows how war promoted state formation and nation building in europe historically ultimately strengthening institutions tilly 1975 we study the aftermath of the recent civil conflict in sierra leone one notable aspect of this project is the extensive household data for sierra leone on conflict experiences and on local institutions our results are complementary to the other recent studies mentioned above none of which examines institutional impacts

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

a dynamic analysis of the demand for health insurance and health care we find that asymmetric information is important for the uptake of supplementary private health insurance and health care utilization we use dynamic panel data models to investigate the sources of asymmetric information and distinguish short run selection effects into insurance from long run selection effects short run selection effects i e responses to shocks are adverse but small in size also long run effects driven by differences in for example preferences and risk aversion are small but we find some evidence for multidimensional asymmetric information for example mental health causes advantageous selection estimates of health care utilization models suggest that moral hazard is not important

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

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

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

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

modeling technology adoption in developing countries an analysis of technology adoption decisions by poor farmers is provided some possible empirical models for studying technology adoption are reviewed the issue of theoretical consistency is dealt with in terms of the costs of such consistency measured in data needs and model complexity and the benefits measured in terms of understanding the micro economic foundations of adoption

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

costs and benefits of land fragmentation evidence from rwanda this paper disentangles different aspects of land fragmentation and its impact on the efficiency of resource use the paper uses information on the incidence of crop shocks to assess whether fragmentation provides benefits in reducing risk and parcel coordinates and terrain adjusted travel times between parcels to more precisely account for the associated costs in 2010 11 data from rwanda while fragmentation increases the time required to move between a household s parcels this does not appear to affect overall technical efficiency on the farm fragmentation rather reduces the incidence of crop shocks and increases yields and productive efficiency in rwanda s setting interventions to reduce fragmentation may therefore be ineffective or counterproductive

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

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

do bad risks know it experimental evidence on optimism and adverse selection abstract subjects who overestimate their performance in experimental tasks unrelated to travel are less willing to insure against failing in the task and also less inclined to buy travel insurance this suggests intrinsic optimism influences insurance demand and diminishes adverse selection

financial crisis and productivity evolution evidence from indonesia we examine how the productivity of different industries changes over the course of a financial crisis by exploiting cross firm within industry differences in productivity resulting from the asian financial crisis of 1997 we show that the crisis coincided with dramatic changes in productivity and that many of these changes were sustained in the long run in particular an increasing number of industries experienced decreases in average firm productivity during the crisis and did not recover further we find that changes in industrial productivity in the recovery period are driven not by increases in the productivity of existing firms but rather by the entry of new firms and changes to the reallocation of market share finally we find that foreign exporters productivity was the least impacted by the crisis suggesting that only access to alternate forms of both capital and international markets can help to smooth investment and maintain productivity over a financial crisis

selection on observed and unobserved variables assessing the effectiveness of catholic schools in this paper we measure the effect of catholic high school attendance on educational attainment and test scores because we do not have a good instrumental variable for catholic school attendance we develop new estimation methods based on the idea that the amount of selection on the observed explanatory variables in a model provides a guide to the amount of selection on the unobservables we also propose an informal way to assess selectivity bias based on measuring the ratio of selection on unobservables to selection on observables that would be required if one is to attribute the entire effect of catholic school attendance to selection bias we use our methods to estimate the effect of attending a catholic high school on a variety of outcomes our main conclusion is that catholic high schools substantially increase the probability of graduating from high school and more tentatively attending college we find little evidence of an effect on test scores

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

fdi and the dynamics of productivity in indonesian manufacturing this article examines productivity growth in the indonesian manufacturing sector we use a longitudinal data set to calculate the effects on aggregate manufacturing productivity growth from improvements within establishments from reallocation of market shares and from the turnover of plants productivity growth is mainly explained by reallocation of market shares and from turnover of plants moreover the foreign contribution to productivity growth is unclear and depends on the choice of productivity measure a cautious conclusion is that the foreign contribution is about the same size as the foreign share of manufacturing output finally there is a difference in the causes of productivity growth between foreign and domestic plants

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

do financial incentives trump clinical guidance hip replacement in england and scotland following devolution in 1999 england and scotland s national health services diverged resulting in major differences in hospital payment england introduced a case payment mechanism from 2003 4 while scotland continued to pay through global budgets we investigate the impact this change had on activity for hip replacement we examine the financial reimbursement attached to uncemented hip replacement in england which has been more generous than for its cemented counterpart although clinical guidance from the national institute for clinical excellence recommends the later in scotland this financial differential does not exist we use a difference in difference estimator using scotland as a control to test whether the change in reimbursement across the two countries had an influence on treatment our results indicate that financial incentives are directly linked to the faster uptake of the more expensive uncemented hip replacement in england which ran against the clinical guidance

does medicare save lives health insurance characteristics shift at age 65 as most people become eligible for medicare we measure the impacts of these changes on patients who are admitted to hospitals through emergency departments for conditions with similar admission rates on weekdays and weekends the age profiles of admissions and comorbidities for these patients are smooth at age 65 suggesting that the severity of illness is similar on either side of the medicare threshold in contrast the number of procedures performed in hospitals and total list charges exhibit small but statistically significant discontinuities implying that patients over 65 receive more services we estimate a nearly 1 percentage point drop in 7 day mortality for patients at age 65 equivalent to a 20 reduction in deaths for this severely ill patient group the mortality gap persists for at least 9 months after admission

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

ethnicity and development in africa a reappraisal 131 enroll while membership is an entitlement that can be activated the entitlement is restricted by family membership as in other developing regions formal institutions are weak in modern africa and persons therefore tend to organize economic relationships through social institutions one way of augmenting the stock of capital is through education another is through migration to the city to a great degree it is families who organize the flow of resources that promote both urban migration and the acquisition of skills recognizing the central role of families in the formation of capital one can achieve a better grasp of the relationship between modernization and ethnicity to a significant degree modernization is achieved through the process of human capital formation this process is privately organized that is to say it is organized by families families organize the flow of resources between generations and sectors thus promoting the acquisition of skills and urban migration and thus the modernization of societies it is by stabilizing the contract between generations within family units that ethnic groups facilitate the process of investment to illustrate i use data collected from a village in luapula province zambia which supplies labor to the mining centers of zambia and congo when conducting my field work i focused on links between town and country and found that the income rural dwellers derived from town varied systematically with the structure size age composition and education of their families the coefficients in the remittance function suggested that an additional child yields on average 3 23 kwacha in the form of financial those who study modern africa commonly highlight three features its poverty its instability and its ethnic diversity whether in lurid popularizations e g robert kaplan 1994 or in social scientific research e g william easterly and ross levine 1997 but see also paul collier and a hoeffler 1998 scholars reason that africa is poor because it is unstable and that its instability derives from its ethnic complexity ethnicity thus lies it is held at the root of africa s development crisis this essay critiques the conventional wisdom by mounting an alternative interpretation using both qualitative and quantitative data from africa this article argues that

the effect of air traffic delays on airline prices abstract a legislative change in takeoff and landing restrictions at laguardia airport provides an opportunity to study the effect of an exogenous shock to product quality on prices in the airline industry i test how the price response varies with the degree of competition in the market i find that prices fall by 1 42 on average for each additional minute of flight delay and that the price response is substantially larger in more competitive markets

perspiration versus inspiration in asian industrialisation indonesia before the crisis this article examines trends in and determinants of total factor productivity tfp in 28 manufacturing industries in indonesia over the period 1975 93 the reforms of the mid 1980s appeared to have resulted in a significant acceleration of tfp growth among the inter industry determinants of tfp growth trade policy and orientation domestic competitive pressures and ownership factors are singled out for scrutiny the trade regime and one measure of domestic competition emerge as consistently important explanatory factors

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

entitled to work urban property rights and labor supply in peru this brief summarizes the results of a gender impact evaluation study entitled entitled to work urban property rights and labor supply in peru new legal rights were issued in 1996 project teams providing titling service through 2003 in peru the study observed that between 1996 and 2003 the peruvian government issued property titles to over 1 2 million urban households the largest titling program targeted at urban squatters in the developing world this paper examines the labor market effects of increases in tenure security resulting from the program pre program squatters in program neighborhoods were significantly more likely to report improved tenure security by 60 percent similarly program participants were 18 8 percentage points less likely to report a high likelihood of eviction or invasion and 18 8 percentage points more likely to report that their dwelling was currently very secure from eviction or invasion the likelihood of working inside the home significantly falls by 11 6 percentage points for the average squatter family with two program periods

the impact of state tax subsidies for private long term care insurance on coverage and medicaid expenditures abstract in spite of the large expected costs of needing long term care only 10 12 of the elderly population has private insurance coverage medicaid which provides means tested public assistance and pays for almost half of long term care costs spends more than 100 billion annually on long term care in this paper i exploit variation in the adoption and generosity of state tax subsidies for private long term care insurance to determine whether tax subsidies increase private coverage and reduce medicaid s costs for long term care the results indicate that the average tax subsidy raises coverage rates by 2 7 percentage points or 28 however the response is concentrated among high income and asset rich individuals populations with low probabilities of relying on medicaid simulations suggest each dollar of state tax expenditure produces approximately 0 84 in medicaid savings over half of which funnels to the federal government

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

ethnic enclaves and the economic success of immigrants evidence from a natural experiment recent immigrants tend to locate in ethnic enclaves within metropolitan areas the economic consequence of living in such enclaves is still an unresolved issue we use an immigrant policy initiative in sweden when government authorities distributed refugee immigrants across locales in a way that may be considered exogenous this policy initiative provides a unique natural experiment which allows us to estimate the causal effect on labor market outcomes of living in enclaves we find substantive evidence of sorting across locations when sorting is taken into account living in enclaves improves labor market outcomes for instance the earnings gain associated with a standard deviation increase in ethnic concentration is in the order of four to five percent

machine replacement and the business cycle lumps and bumps this paper explores investment fluctuations due to discrete changes in a plant s capital stock the resulting aggregate investment dynamics are surprisingly rich reflecting the interaction between a replacement cycle the cross sectional distribution of the age of the capital stock and an aggregate shock using plant level data lumpy investment is procyclical and more likely for older capital further the predicted path of aggregate investment that neglects vintage effects tracks actual aggregate investment reasonably well however ignoring fluctuations in the cross sectional distribution of investment vintages can yield predictable nontrivial errors in forecasting changes in aggregate investment

medicaid managed care effects on children s medicaid coverage and utilization abstract we use data from the national health interview surveys nhis to measure the effects of the growth of medicaid managed care on children we examine both the probability that individual children were medicaid covered and their utilization of care we find that managed care penetration has significant effects on the composition of the medicaid caseload young children are less likely to be covered while poor school age children are more likely to be covered when we examine coverage by race we find that black children are less likely to be covered where medicaid managed care organizations mmcos are more prevalent these lower medicaid enrollment rates are linked to increases in the numbers of young children who go without any doctor visits in a year these results suggest that it is important to examine the potential effects of changes in medicaid on selection into the medicaid program rather than focusing exclusively on the effects of managed care on those who are enrolled in addition among those enrolled in medicaid higher managed care penetration is associated with an increase in the number of black children with chronic conditions who go without doctor visits but with decreases in the number of hispanic children and poor teens who go without care

perfect competition in markets with adverse selection this paper proposes a perfectly competitive model of a market with adverse selection prices are determined by zero profit conditions and the set of traded contracts is determined by free entry crucially for applications contract characteristics are endogenously determined consumers may have multiple dimensions of private information and an equilibrium always exists equilibrium corresponds to the limit of a differentiated products bertrand game we apply the model to establish theoretical results on the equilibrium effects of mandates mandates can increase efficiency but have unintended consequences with adverse selection an insurance mandate reduces the price of low coverage policies which necessarily has indirect effects such as increasing adverse selection on the intensive margin and causing some consumers to purchase less coverage

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

economic consequences of forced displacement abstractover 42 million people worldwide have been forcibly displaced from their communities though little is known about the impact of this movement on livelihoods i use a panel data set and exploit a geographic discontinuity to explore the effects of displacement in uganda i find that displaced households experience a significant initial decrease in consumption two years after households returned home displaced households still lag behind however households in the top quartiles of pre displacement assets have recovered some of their consumption though with significantly reduced education and wealth levels there is likely little or no recovery for the poorest households

forced displacement and technology adoption an empirical analysis based on agricultural households in bosnia and herzegovina we use the bosnian living standards measurement study lsms survey to show that conflict induced displacement of agricultural households dramatically affects the adoption of new technologies in agriculture we exploit the heterogeneity in the level of violence in the pre war location to account for selection bias this natural experiment seems to be a source of exogenous variation in our case because violence aims at ethnic cleansing without economic consideration we find that the displaced are less likely than stayers to adopt fertiliser and pesticide

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

welfare and child health the link between afdc participation and birth weight the stated goal of the aid for families with dependent children program is to improve the well being of children in poor families the program has come under considerable attack in recent years from critics who argue that participation in afdc is associated with maternal behaviors that are bad for children we investigate this question using birth weight as a measure of child health we find that participation in afdc during pregnancy is associated with delays in obtaining prenatal care smoking and drinking during pregnancy younger maternal age at the birth and ultimately with lower birth weights even when observable characteristics of the mother are controlled for however we show that when unobservable characteristics of the mother are controlled for there is actually a positive association between participation in afdc and the birth weights of children of white women from poor families we find no association between birth weight and maternal participation in afdc among black children

private insurance subsidies and public health care markets evidence from canada in this study i examine the effects of government subsidies to employer provided health insurance on the decision to purchase insurance and on utilization of publicly funded health services using unique variation in tax subsidies across canadian provinces as an instrument i estimate the effects of these subsidies on the demand for supplemental health insurance and their extended effects on the decision to use publicly funded health services my results show that government subsidies through tax exemptions have significant effects on the decision to purchase insurance furthermore additional insurance policies lead to moral hazard in the use of publicly funded health services jel classification h2 h4 11

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

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

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

conflict displacement and labor market outcomes in post war bosnia and herzegovina abstract the war in bosnia and herzegovina of the early nineties displaced 1 3 million people this study uses longitudinal data to document the effects of this displacement on labor market outcomes to account for endogeneity in displacement i exploit the fact that the level of violence affected the decision to leave and that pre war economic performance is orthogonal to local violence levels i find that displaced bosnians are less likely to be working relative to the people who stayed displaced men experience higher unemployment levels and displaced women are more likely to drop out of the labor force

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

the cleansing effect of recessions the authors investigate industry response to cyclical variations in demand production units that embody the newest process and product innovations are continuously being created and outdated units are being destroyed although outdated units are the most likely to turn unprofitable and be scrapped in a recession they can be insulated from the fall in demand by a reduction in creation the structure of adjustment costs plays a determinant role in the responsiveness of those two margins the calibrated model matches the relative volatilities of the observed manufacturing job creation and destruction series and their asymmetries over the cycle copyright 1994 by american economic association

health insurance eligibility utilization of medical care and child health two economists applied data from the current population survey and the national health interview survey and state level data on child mortality to a simulation model of utilization of medical care that varies only with the states legislative environment to examine the utilization of medical care and health effects of medicaid eligibility on low income children the models took into consideration the recent expansions of medicaid to low income children 38 of those ineligible for medicaid in 1984 who became eligible due to changes during 1984 1992 were uninsured between 1984 and 1992 expansions of the medicaid program increased the proportion of children eligible for medicaid almost two fold 16 1 vs 31 2 yet coverage rates were always lower than eligibility rates 13 2 vs 16 1 in 1984 and 20 3 vs 31 2 in 1992 and the increase in coverage rates was only about 50 of the increase in eligibility rates during 1984 1992 the probability that a child was eligible for medicaid increased the probability of health insurance coverage by 29 77 when the model considered bias in variables e g a recession in a state the take up rate was only 22 73 nevertheless medicaid markedly increased use of medical care for example eligibility for medicaid increased the likelihood of making a visit to a physicians office in the last two weeks by about 50 it also increased the probability of a child visiting the hospital suggesting inefficiency in the way that providers deliver care to medicaid enrollees medicaid eligibility had a significant effect on reducing child mortality the 15 1 percentage point increase in eligibility during 1984 1992 reduced child mortality by 4 5 when the researchers examined parent assessed subjective health measures medicaid eligibility had no effect on child health medicaid eligibility reduced race and education based disparities in the number of visits and racial differences in mortality yet it may actually intensify current disparities in health care delivery site

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