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Dynamic Inefficiencies in Insurance Markets: Evidence from long-term care insurance

Amy Finkelstein, Kathleen McGarry and Amir Sufi

No 11039, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine whether unregulated, private insurance markets efficiently provide insurance against reclassification risk (the risk of becoming a bad risk and facing higher premiums). To do so, we examine the ex-post risk type of individuals who drop their long-term care insurance contracts relative to those who are continually insured. Consistent with dynamic inefficiencies, we find that individuals who drop coverage are of lower risk ex-post than individuals who were otherwise-equivalent at the time of purchase but who do not drop out of their contracts. These findings suggest that dynamic market failures in private insurance markets can preclude the efficient provision of insurance against reclassification risk.

JEL-codes: D4 D8 G22 I11 J14 (search for similar items in EconPapers)
Date: 2005-01
New Economics Papers: this item is included in nep-fin, nep-hea, nep-ias and nep-mic
Note: AG EH PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (66)

Published as Finkelstein, Amy, Kathleen McGarry and Amir Sufi. "Dynamic Inefficiencies In Insurance Markets: Evidence From Long-Term Care Insurance," American Economic Review, 2005, v95(2,May), 224-228.

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