Subjective Expectations of Medical Expenditures and Insurance in Rural Ethiopia

Tinbergen Institute Discussion Paper No. TI 2015-120/V

49 Pages Posted: 26 Oct 2015

See all articles by Zelalem Yilma

Zelalem Yilma

Erasmus University Rotterdam (EUR)

Owen O'Donnell

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Anagaw Mebratie

Erasmus University Rotterdam (EUR)

Getnet Alemu

Addis Ababa University

Arjun S. Bedi

Erasmus University Rotterdam - International Institute of Social Studies; IZA Institute of Labor Economics

Date Written: October 26, 2015

Abstract

Little is known about perceptions of medical expenditure risks despite their presumed relevance to health insurance demand. This paper reports on a unique elicitation of subjective probabilities of medical expenditures from rural Ethiopians who are offered the opportunity to purchase health insurance. We find that expectations are positively correlated with past expenses to a degree that exceeds the serial correlation in realized expenditures, suggesting overestimation of persistence and underestimation of the potential gains from insurance. Despite the fact that forecast expenditures do predict realized expenditures to some extent, there is no evidence that expectations influence the decision to take out health insurance, although plans to insure are positively related to the perceived dispersion of medical expenses.

Keywords: Subjective probability, medical expenditure, out-of-pocket payments, adverse selection, health insurance, Ethiopia

JEL Classification: D82, D84, I13, O12

Suggested Citation

Yilma, Zelalem and O'Donnell, Owen and Mebratie, Anagaw and Alemu, Getnet and Bedi, Arjun S., Subjective Expectations of Medical Expenditures and Insurance in Rural Ethiopia (October 26, 2015). Tinbergen Institute Discussion Paper No. TI 2015-120/V. Available at SSRN: https://ssrn.com/abstract=2680129 or http://dx.doi.org/10.2139/ssrn.2680129

Zelalem Yilma (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Owen O'Donnell

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Anagaw Mebratie

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Getnet Alemu

Addis Ababa University ( email )

King George VI St
Addis Ababa, 1000
Ethiopia

Arjun S. Bedi

Erasmus University Rotterdam - International Institute of Social Studies ( email )

PO Box 29776
2502 LT The Hague, 2518 AX
Netherlands
+31 70 426 0493 (Phone)
+31 70 426 0799 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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