American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market
American Economic Review
vol. 96,
no. 4, September 2006
(pp. 938–958)
Abstract
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. (JEL D82, G22, I11)Citation
Finkelstein, Amy, and Kathleen McGarry. 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market." American Economic Review, 96 (4): 938–958. DOI: 10.1257/aer.96.4.938Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- G22 Insurance; Insurance Companies; Actuarial Studies
- I11 Analysis of Health Care Markets