Adverse selection or advantageous selection? Risk and underwriting in China's health-insurance market

Feng Gao, Michael R. Powers () and Jun Wang

Insurance: Mathematics and Economics, 2009, vol. 44, issue 3, pages 505-510

Abstract: Using data from China's individual health-insurance market, we study the problem of information asymmetry. Our preliminary results appear to contradict standard-model predictions, showing that higher-risk buyers are more likely to purchase "additional" insurance than lower-risk buyers, but that they also tend to purchase lower limits of "basic" insurance coverage. We therefore develop a theoretical model to capture the effects of buyers' wealth levels and loss amounts, and show empirically that these effects, in the context of asymmetric information, lead to the coexistence of adverse selection and advantageous selection in China's health-insurance market.

Keywords: Asymmetric; information; Adverse; selection; Advantageous; selection; Probit; analysis (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:insuma:v:44:y:2009:i:3:p:505-510

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