A simple test of private information in the insurance markets with heterogeneous insurance demand
By: Li Gan, Feng Huang, Adalbert Mayer
Contributors: Huang, Feng; Mayer, Adalbert, 1951-; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16738; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16738.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.  A positive correlation between insurance coverage and ex post risk can be an indicator for private information in insurance markets.  However, this test fails if agents have heterogeneous risk attitudes.  We propose a new test that conditions on unobserved types of individuals who differ in their risks preferences.  This makes it possible to detect asymmetric information without direct evidence of private information - even if agents have heterogeneous risk attitudes.  We apply our technique to the market for long-term care insurance.  Finkelstein and McGarry (2006) provide direct evidence for the existence of private information in this market.  At the same time they fail to find a positive correlation between insurance coverage and ex post risk.  Our method indicates the existence of private information, without using direct evidence of private information.  Our methodology is applicable to other insurance markets and markets where proxies for private information are not available"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 4/28/2011.

Includes bibliographical references.

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