The welfare cost of unpriced heterogeneity in insurance markets

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4 Citazioni (Scopus)


We consider the welfare loss of unpriced heterogeneity in insurance markets, which results when private information or regulatory constraints prevent insurance companies to set premiums reflecting expected costs. We propose a methodology which uses survey data to measure this welfare loss. After identifying some “types” which determine expected risk and insurance demand, we derive the key factors defining the demand and cost functions in each market induced by these unobservable types. These are used to quantify the efficiency costs of unpriced heterogeneity. We apply our methods to the US Long-Term Care and Medigap insurance markets, where we find that unpriced heterogeneity causes substantial inefficiency.
Lingua originaleEnglish
pagine (da-a)998-1028
Numero di pagine31
RivistaRAND Journal of Economics
Stato di pubblicazionePublished - 2016

All Science Journal Classification (ASJC) codes

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