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Revisiting early structural findings of asymmetric information’s non-existence in health insurance

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  • Valdez, Samuel

Abstract

Cardon and Hendel (2001) presented the first structural model that studied adverse selection in the health insurance market—finding no evidence of informational asymmetries. More recent studies, however, have robustly demonstrated substantial evidence of adverse selection in health insurance markets. I demonstrate that once an error in the first-order condition of the maximization problem presented in Cardon and Hendel (2001) is corrected, while still not significant, the parameter capturing asymmetric information increases substantially.

Suggested Citation

  • Valdez, Samuel, 2021. "Revisiting early structural findings of asymmetric information’s non-existence in health insurance," Economics Letters, Elsevier, vol. 207(C).
    • Handle: RePEc:eee:ecolet:v:207:y:2021:i:c:s0165176521002937
    DOI: 10.1016/j.econlet.2021.110016
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    References listed on IDEAS

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    1. Liran Einav & Amy Finkelstein & Jonathan Levin, 2010. "Beyond Testing: Empirical Models of Insurance Markets," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 311-336, September.
    2. M. Kate Bundorf & Jonathan Levin & Neale Mahoney, 2012. "Pricing and Welfare in Health Plan Choice," American Economic Review, American Economic Association, vol. 102(7), pages 3214-3248, December.
    3. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 629-649.
    4. Cutler, David M. & Zeckhauser, Richard J., 2000. "The anatomy of health insurance," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 11, pages 563-643, Elsevier.
    5. Pierre-Andre Chiappori & Bernard Salanie, 2000. "Testing for Asymmetric Information in Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 56-78, February.
    6. Patrick Bajari & Christina Dalton & Han Hong & Ahmed Khwaja, 2014. "Moral hazard, adverse selection, and health expenditures: A semiparametric analysis," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 747-763, December.
    7. Benjamin R. Handel, 2013. "Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts," American Economic Review, American Economic Association, vol. 103(7), pages 2643-2682, December.
    8. Cardon, James H & Hendel, Igal, 2001. "Asymmetric Information in Health Insurance: Evidence from the National Medical Expenditure Survey," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 408-427, Autumn.
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    More about this item

    Keywords

    Asymmetric and private information; Insurance; Health insurance;
    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
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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