Does Selection in Insurance Markets Always Favor Buyers?

36 Pages Posted: 24 Aug 2013

Date Written: August 23, 2013

Abstract

This paper provides empirical evidence of advantageous selection in insurance markets. By using a novel insurance setting where moral hazard is not a concern, I am able to distinguish selection from moral hazard. I find that takeup of area yield crop insurance in the US, where payouts are based on average county yields, are higher when county yields are higher (advantageous selection). I also find evidence of adverse selection based on last year's yields. I show that neither result is driven by price changes. Overall, the net selection into these plans favors insurance providers, not buyers.

Keywords: selection, crop insurance

Suggested Citation

Deryugina, Tatyana, Does Selection in Insurance Markets Always Favor Buyers? (August 23, 2013). Available at SSRN: https://ssrn.com/abstract=2314652 or http://dx.doi.org/10.2139/ssrn.2314652

Tatyana Deryugina (Contact Author)

University of Illinois ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

HOME PAGE: http://deryugina.com

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