Adverse selection in group insurance: The virtues of failing to represent voters

Robin Hanson

Economics of Governance, 2005, vol. 6, issue 2, 139-157

Abstract: Compared with non-union workers, union workers take more of their compensation in the form of insurance. This may be because unions choose democratically, and democratic choice mitigates adverse selection in group insurance. Relative to individually-purchased insurance, we show that group insurance chosen by an ideal profit-maximizing employer can be worse for every employee, while group insurance chosen democratically can be much better. The reason is that democracy can fail to represent the preferences of almost half the group. Copyright Springer-Verlag Berlin/Heidelberg 2005

Keywords: Union; compensation; democracy (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10101-004-0083-9

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