Estimating Welfare in Insurance Markets Using Variation in Prices

Liran Einav, Amy Finkelstein and Mark R. Cullen

No 14414, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show how standard consumer and producer theory can be used to estimate welfare in insurance markets with selection. The key observation is that the same price variation needed to identify the demand curve also identifies how costs vary as market participants endogenously respond to price. With estimates of both the demand and cost curves, welfare analysis is straightforward. We illustrate our approach by applying it to the employee health insurance choices at Alcoa, Inc. We detect adverse selection in this setting but estimate that its quantitative welfare implications are small, and not obviously remediable by standard public policy tools.

JEL-codes: C13 C51 D14 D60 D82 I11 (search for similar items in EconPapers)
Date: 2008-10
New Economics Papers: this item is included in nep-ias and nep-mic
Note: AG EH IO PE
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Citations: View citations in EconPapers (8)

Published as The Quarterly Journal of Economics (2010) 125 (3): 877-921. doi: 10.1162/qjec.2010.125.3.877

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Related works:
Journal Article: Estimating Welfare in Insurance Markets Using Variation in Prices (2010)
Working Paper: Estimating Welfare in Insurance Markets Using Variation in Prices (2009)
Working Paper: Estimating Welfare in Insurance Markets Using Variation in Prices (2008)
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