The Two Margin Problem in Insurance Markets
Timothy Layton (),
Grace McCormack and
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Michael Geruso: University of Texas at Austin
Grace McCormack: Harvard University
Mark Shepard: Harvard Kennedy School
Working Paper Series from Harvard University, John F. Kennedy School of Government
Insurance markets often feature consumer sorting along both an extensive margin (whether to buy) and an intensive margin (which plan to buy). We present a new graphical theoretical framework that extends a workhorse model to incorporate both selection margins simultaneously. A key insight from our framework is that policies aimed at addressing one margin of selection often involve an economically meaningful tradeoff on the other margin in terms of prices, enrollment,and welfare. Using data from Massachusetts, we illustrate these tradeoffs in an empirical sufficient statistics approach that is tightly linked to the graphical framework we develop.
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Working Paper: The Two Margin Problem in Insurance Markets (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:rwp19-035
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