American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Pricing Institutions and the Welfare Cost of Adverse Selection
American Economic Journal: Microeconomics
vol. 9,
no. 2, May 2017
(pp. 139–48)
Abstract
To mitigate adverse selection in insurance markets, individuals are often mandated to buy at least a baseline plan, but may choose to opt into a premium plan. In some markets, such as US health exchanges, each plan is responsible for the full expenses of those who buy it ("total pricing"). In other markets, such as the privately supplied "Medigap" top-ups to traditional government-provided Medicare, premium providers are only responsible for the incremental expenses they top up ("incremental pricing"). For parameter values calibrated to health exchanges, the shift from total to incremental pricing reduces the welfare loss from adverse selection by an order of magnitude.Citation
Weyl, E. Glen, and André Veiga. 2017. "Pricing Institutions and the Welfare Cost of Adverse Selection." American Economic Journal: Microeconomics, 9 (2): 139–48. DOI: 10.1257/mic.20150295Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- G22 Insurance; Insurance Companies; Actuarial Studies
- H51 National Government Expenditures and Health
- I13 Health Insurance, Public and Private
- I18 Health: Government Policy; Regulation; Public Health
There are no comments for this article.
Login to Comment