Measuring Ex-Ante Welfare in Insurance Markets

Nathaniel Hendren

No 24470, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The willingness to pay for insurance captures the value of insurance against only the risk that remains when choices are observed. This paper develops tools to measure the ex-ante expected utility impact of insurance subsidies and mandates when choices are observed after some insurable information is revealed. The approach retains the transparency of using reduced-form willingness to pay and cost curves, but it adds one additional sufficient statistic: the difference in marginal utilities between insured and uninsured. I provide an approach to estimate this statistic that uses only reduced-form willingness to pay and cost curves, combined with either a measure of risk aversion. I compare the approach to structural approaches that require fully specifying the choice environment and information sets of individuals. I apply the approach using existing willingness to pay and cost curve estimates from the low-income health insurance exchange in Massachusetts. Ex-ante optimal insurance prices are roughly 30% lower than prices that maximize market surplus. While mandates would increase deadweight loss, the results suggest they would actually increase ex-ante expected utility.

JEL-codes: H0 I11 I3 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-ias and nep-upt
Note: AG EH IO LS PE
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Published as Nathaniel Hendren, 2021. "Measuring Ex Ante Welfare in Insurance Markets," The Review of Economic Studies, vol 88(3), pages 1193-1223.

Downloads: (external link)
http://www.nber.org/papers/w24470.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:24470

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w24470

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().