We then show that leasing contracts can be constructed so as to achieve efficiency if consumers are patient. Lack of commitment to long term insurance contracts is believed to leave consumers subject to reclassification risk. We present a model of long term insurance in an environment with evolving information to study this question. We test the implications of the model about optimal dynamic contracts using a very rich data set on life insurance contracts. The data contains the whole future profile of premiums.
Adverse selection is perceived as a major source of market failure in insurance markets.
There is very little empirical evidence on the extent of the problem. We test for unobservables linking health insurance status and health care consumption. We find no evidence of informational asymemtries. We validate our estimates by comparing some of them, like the moral hazard estimates, to the Rand Health Insurance Experiment findngs. They are in the range.