Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market

TitleMultiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market
Publication TypeJournal Article
Year of Publication2006
AuthorsFinkelstein, A, McGarry, K
JournalAmerican Economic Review
Volume96
Issue4
Pagination938-58
Call Numbernewpubs20070403_aer.96.4.pdf
KeywordsInsurance, Medicare/Medicaid/Health Insurance, Risk Taking
Abstract

We demonstrate the existence of multiple dimensions of private information in the long-term care insurance market. Two types of people purchase insurance: individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance. Ex post, the former are higher risk than insurance companies expect, while the latter are lower risk. In aggregate, those with more insurance are not higher risk. Our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence. The results also suggest a general test for asymmetric information.

Endnote Keywords

Insurance, Long Term Care/Insurance Coverage/risk factors

Endnote ID

17360

Citation Key7109