Multiple Dimensions of Private Information in Life Insurance Markets

43 Pages Posted: 16 Nov 2013 Last revised: 29 Jan 2015

See all articles by Xi Wu

Xi Wu

Texas A&M University - Department of Economics

Li Gan

Texas A&M University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 2013

Abstract

Conventional theory for private information of adverse selection predicts a positive correlation between insurance coverage and ex post risk. This paper shows the opposite in the life insurance market despite the clear evidence of private information on mortality risk. The reason for this contradictory result is the existence of multiple dimensions of private information. The paper discusses how the private information on insurance preference offsets the effect of the private information on mortality risk. A mixture density model is applied to disentangle these two effects.

Suggested Citation

Wu, Xi and Gan, Li, Multiple Dimensions of Private Information in Life Insurance Markets (November 2013). NBER Working Paper No. w19629. Available at SSRN: https://ssrn.com/abstract=2355638

Xi Wu

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

Li Gan

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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