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Does bundling induce adverse selection in insurance?

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  • Annan, Francis

Abstract

Bundling credit with insurance contracts is a common approach to increasing insurance take-up, especially in low income-environments. I document that this approach can induce adverse selection in insurance; thus, acting as an important source of inefficiency.

Suggested Citation

  • Annan, Francis, 2020. "Does bundling induce adverse selection in insurance?," Economics Letters, Elsevier, vol. 196(C).
    • Handle: RePEc:eee:ecolet:v:196:y:2020:i:c:s0165176520303542
    DOI: 10.1016/j.econlet.2020.109588
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    References listed on IDEAS

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    1. Glenn W. Harrison & Jia Min Ng, 2016. "Evaluating The Expected Welfare Gain From Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(1), pages 91-120, January.
    2. Dean Karlan & Robert Osei & Isaac Osei-Akoto & Christopher Udry, 2014. "Agricultural Decisions after Relaxing Credit and Risk Constraints," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 597-652.
    3. Dean Karlan & Jonathan Zinman, 2009. "Observing Unobservables: Identifying Information Asymmetries With a Consumer Credit Field Experiment," Econometrica, Econometric Society, vol. 77(6), pages 1993-2008, November.
    4. Alma Cohen & Peter Siegelman, 2010. "Testing for Adverse Selection in Insurance Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(1), pages 39-84, March.
    5. Braverman, Avishay & Stiglitz, Joseph E, 1982. "Sharecropping and the Interlinking of Agrarian Markets," American Economic Review, American Economic Association, vol. 72(4), pages 695-715, September.
    6. Abhijit Banerjee & Esther Duflo & Richard Hornbeck, 2014. "Bundling Health Insurance and Microfinance in India: There Cannot Be Adverse Selection If There Is No Demand," American Economic Review, American Economic Association, vol. 104(5), pages 291-297, May.
    7. Lorenzo Casaburi & Jack Willis, 2018. "Time versus State in Insurance: Experimental Evidence from Contract Farming in Kenya," American Economic Review, American Economic Association, vol. 108(12), pages 3778-3813, December.
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    Cited by:

    1. Annan, Francis, 2022. "Moral hazard in insurance: Theory and evidence from a credit reform in Ghana," Journal of Public Economics, Elsevier, vol. 209(C).

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    More about this item

    Keywords

    Adverse selection; Insurance; Credit; Bundling; Regulation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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