Estimating Welfare in Insurance Markets Using Variation in Prices

Mark Cullen, Liran Einav and Amy Finkelstein
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Mark Cullen: Stanford University

No 08-006, Discussion Papers from Stanford Institute for Economic Policy Research

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 straight forward. 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.

Keywords: asymmetric information; adverse selection; health insurance; effciency cost (search for similar items in EconPapers)
JEL-codes: C13 C51 D14 D60 D82 I11 (search for similar items in EconPapers)
Date: 2008-10
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Citations: View citations in EconPapers (7)

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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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