Illustrating Adverse Selection in Health Insurance Markets with a Classroom Game
Jennifer Mellor ()
No 11, Working Papers from Department of Economics, College of William and Mary
This paper describes a classroom game that illustrates the effects of asymmetric information and adverse selection in health insurance markets. The first part of this game simulates a market in which buyers can purchase insurance from sellers; in some periods, government regulation of the insurance market prevents sellers from using information about buyer type to determine premiums. The results demonstrate the classic prediction that asymmetric information will result in adverse selection. Here, low risk buyers will forego the purchase of insurance at a measurable loss of potential earnings. In the second part of the game, sellers and buyers can trade two different types of health insurance policies, one moderate and another generous. The results from this part show that adverse selection can lead to an inefficient sorting of buyers across plans under government-mandated community rating and limits on premium increases. Under these circumstances, no buyers will purchase the generous insurance plan. The paper provides a series of questions to stimulate class discussion on the causes and consequences of adverse selection for consumers and insurers, and solutions that can be implemented in employer and government-sponsored programs.
Keywords: Classroom; Experiment; Adverse selection (search for similar items in EconPapers)
JEL-codes: A2 C9 D4 I1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp, nep-hea, nep-ias and nep-mic
Date: 2004-12-10, Revised 2005-03-18
References: Add references at CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Journal Article: Illustrating Adverse Selection in Health Insurance Markets with a Classroom Game (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cwm:wpaper:11
Access Statistics for this paper
More papers in Working Papers from Department of Economics, College of William and Mary Contact information at EDIRC.
Bibliographic data for series maintained by Daifeng He (). This e-mail address is bad, please contact .