Information frictions and adverse selection: policy interventions in health insurance markets
Benjamin R. Handel,
Jonathan T. Kolstad and
LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library
Despite evidence that many consumers in health insurance markets are subject to information frictions, approaches used to evaluate these markets typically assume informed, active consumers. This gap between actual behavior and modeling assumptions has important consequences for positive and normative analysis. We develop a general framework to study insurance market equilibrium in the presence of choice frictions and evaluate key policy interventions, designed to combat adverse selection or to combat poor choices. We identify sufficient relationships between the underlying distributions of consumer (i) costs, (ii) surplus from risk protection and (iii) choice frictions that determine whether friction-reducing policies will be on net welfare increasing, due to improved consumer matching, or welfare reducing, due to increased adverse selection. We show that the impact of insurer risk-adjustment transfers, a supply-side policy designed to combat adverse selection, depends crucially on how effective consumer choices are, and is generally complementary to choice-improving policies. We implement our approach empirically, show how these key sufficient objects can be measured in practice, and illustrate the theoretically-motivated link between these objects and key policy outcomes.
JEL-codes: J1 F3 G3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Published in Review of Economics and Statistics, 24, January, 2018, 101(2), pp. 326-340. ISSN: 0034-6535
Downloads: (external link)
http://eprints.lse.ac.uk/87775/ Open access version. (application/pdf)
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:ehl:lserod:87775
Access Statistics for this paper
More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().