Testing for Adverse Selection in Insurance Markets
Tel Aviv University - Eitan Berglas School of Economics; Harvard Law School; National Bureau of Economic Research (NBER)
University of Connecticut - School of Law
November 1, 2009
Journal of Risk and Insurance, 2010
Harvard Law and Economics Discussion Paper No. 651
This paper reviews and evaluates the empirical literature on adverse selection in insurance markets. We focus on empirical work that seeks to test the basic coverage - risk prediction of adverse selection theory - that is, that policyholders who purchase more insurance coverage tend to be riskier. The analysis of this body of work, we argue, indicates that whether such a correlation exists varies across insurance markets and pools of insurance policies. We discuss various reasons why a coverage-risk correlation may be found in some pools of insurance policies but not in others. We also review the work on the disentangling of adverse selection and moral hazard and on learning by policyholders and insurers.
Number of Pages in PDF File: 51
Keywords: Insurance, adverse selection, moral hazard, accidents, claims, annuities, automobile insurance, health insurance, life insurance, risk-aversion, risk, coverage
JEL Classification: D82, G22Accepted Paper Series
Date posted: November 25, 2009 ; Last revised: February 15, 2010
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