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Something in the Air: Pollution and the Demand for Health Insurance

Tom Y Chang, Wei Huang and Yongxiang Wang

Review of Economic Studies, 2018, vol. 85, issue 3, 1609-1634

Abstract: We find that daily air pollution levels have a significant effect on the decision to purchase or cancel health insurance in a manner inconsistent with rational choice theory. A one standard deviation increase in daily air pollution leads to a 7.2% increase in the number of insurance contracts sold that day. Conditional on purchase, a one standard deviation decrease in air pollution during the cooling-off (i.e. cost-free cancellation) period relative to the order-date level increases the return probability by 4.0%. We explore a range of potential mechanism and find the most support for projection bias and salience.

Keywords: Projection bias; Salience (search for similar items in EconPapers)
JEL-codes: D12 D91 (search for similar items in EconPapers)
Date: 2018
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