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Adverse Selection

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David Mccarthy – One of the best experts on this subject based on the ideXlab platform.

  • International Adverse Selection in Life Insurance and Annuities
    SSRN Electronic Journal, 2003
    Co-Authors: David Mccarthy, Olivia S. Mitchell
    Abstract:

    This paper evaluates the extent of Adverse Selection in life insurance and annuities in international markets, for both group and individual products. We also compare results with prior analyses of Adverse Selection in international annuity markets, focusing on the US, the UK, and Japan. Our results help assess the extent to which life insurers can hedge mortality exposure by writing both life insurance and annuities, and they may be used to determine a normal range for Adverse Selection in international insurance markets.

  • Estimating International Adverse Selection in Annuities
    North American Actuarial Journal, 2002
    Co-Authors: Olivia S. Mitchell, David Mccarthy
    Abstract:

    Abstract It is well known that purchasers of annuities have lower mortality than the general population. Less widely known is the quantitative extent of this Adverse Selection and how it varies across countries. This paper proposes and applies several methods for comparing alternative mortality tables and illustrates their impact on annuity valuation for men and women in the U.S. and the U.K. Our results indicate that the relatively lower mortality among older Americans who purchase annuities is equivalent to using a discount rate that is 50–100 basis points below the U.K. rate for compulsory annuitants or 10–20 basis points lower than the U.K. rate for voluntary annuitants. We then draw on the mortality experience of over half a billion lives to estimate mortality differentials due to varying degrees of Adverse Selection controlling for country, gender, and an allowance for mortality improvements. Results show that Adverse Selection associated with the purchase of individual annuities reduces mortality r…

Alessandro Lizzeri – One of the best experts on this subject based on the ideXlab platform.

  • Adverse Selection in durable goods markets
    The American Economic Review, 1999
    Co-Authors: Igal Hendel, Alessandro Lizzeri
    Abstract:

    An undesirable feature of Akerlof style models of Adverse Selection is that ownership of” used cars is independent of preferences and is therefore ad hoc. We present a dynamic model” that incorporates the market for new goods. Consumers self-select into buying new or used” goods making ownership of used goods endogenous. We show that, in contrast with Akerlof and” in agreement with reality, the used market never shuts down and that the volume of trade can be” quite substantial even in cases with severe informational asymmetries. By incorporating the” market for new goods, the model lends itself to a study of the effects of Adverse Selection on” manufacturers’ incentives. We find that manufacturers may gain from Adverse Selection. We” also give an example in which the market allocation under Adverse Selection is socially optimal. ” An extension of the model to a world with many brands that differ in reliability leads to testable” predictions of the effects of Adverse Selection. We show that unreliable car brands have steeper” price declines and lower volumes of trade.

  • Adverse Selection in durable goods markets
    The American Economic Review, 1999
    Co-Authors: Igal Hendel, Alessandro Lizzeri
    Abstract:

    We present a dynamic model of Adverse Selection to examine the interactions between new and used goods markets. We find that the used market never shuts down, the volume of trade can be large, and distortions are lower than previously thought. New cars prices can be higher under Adverse Selection than in its absence. An extension to several brands that differ in reliability leads to testable predictions of the effects of Adverse Selection. Unreliable brands have steeper price declines and lower volumes of trade. We contrast these predictions with those of a model where brands physically depreciate at different rates.

Olivia S. Mitchell – One of the best experts on this subject based on the ideXlab platform.

  • International Adverse Selection in Life Insurance and Annuities
    SSRN Electronic Journal, 2003
    Co-Authors: David Mccarthy, Olivia S. Mitchell
    Abstract:

    This paper evaluates the extent of Adverse Selection in life insurance and annuities in international markets, for both group and individual products. We also compare results with prior analyses of Adverse Selection in international annuity markets, focusing on the US, the UK, and Japan. Our results help assess the extent to which life insurers can hedge mortality exposure by writing both life insurance and annuities, and they may be used to determine a normal range for Adverse Selection in international insurance markets.

  • Estimating International Adverse Selection in Annuities
    North American Actuarial Journal, 2002
    Co-Authors: Olivia S. Mitchell, David Mccarthy
    Abstract:

    Abstract It is well known that purchasers of annuities have lower mortality than the general population. Less widely known is the quantitative extent of this Adverse Selection and how it varies across countries. This paper proposes and applies several methods for comparing alternative mortality tables and illustrates their impact on annuity valuation for men and women in the U.S. and the U.K. Our results indicate that the relatively lower mortality among older Americans who purchase annuities is equivalent to using a discount rate that is 50–100 basis points below the U.K. rate for compulsory annuitants or 10–20 basis points lower than the U.K. rate for voluntary annuitants. We then draw on the mortality experience of over half a billion lives to estimate mortality differentials due to varying degrees of Adverse Selection controlling for country, gender, and an allowance for mortality improvements. Results show that Adverse Selection associated with the purchase of individual annuities reduces mortality r…

Piero Gottardi – One of the best experts on this subject based on the ideXlab platform.

  • efficient competitive equilibria with Adverse Selection
    Journal of Political Economy, 2006
    Co-Authors: Alberto Bisin, Piero Gottardi
    Abstract:

    Do Walrasian markets function orderly in the presence of Adverse Selection? In particular, is their outcome efficient when exclusive contracts are enforceable? This paper addresses these questions in the context of a Rothschild‐Stiglitz insurance economy. We identify an externality associated with the presence of Adverse Selection as a special form of consumption externality. Consequently, we show that competitive equilibria always exist but are not typically incentive efficient. However, as markets for pollution rights can internalize environmental externalities, markets for consumption rights can be designed to internalize the consumption externality due to Adverse Selection. With such markets competitive equilibria exist and incentive‐constrained versions of the first and second welfare theorems hold.

  • Efficient Competitive Equilibria with Adverse Selection
    Journal of Political Economy, 2006
    Co-Authors: Alberto Bisin, Piero Gottardi
    Abstract:

    Do Walrasian markets function orderly in the presence of Adverse Selection? In particular, is their outcome efficient? This paper addresses these questions in the context of a Rothschild and Stiglitz insurance economy. We identify an externality associated with the presence of Adverse Selection as a special form of consumption externality. Consequently, we show that while competitive equilibria always exist, they are not typically incentive efficient. However, as markets for pollution rights can internalize environmental externalities, markets for consumption rights can be designed so as to internalize the consumption externality due to Adverse Selection. With such markets competitive equilibria exist and are always incentive efficient. Moreover, any incentive efficient allocation can be decentralized as a competitive equilibrium.

  • Competitive Equilibria with Adverse Selection
    , 2005
    Co-Authors: Alberto Bisin, Piero Gottardi
    Abstract:

    Do Walrasian markets function orderly in the presence of Adverse Selection? In particular, is their outcome ecient? This paper addresses these questions in the context of a Rothschild and Stiglitz insurance economy. We identify an externality associated with the presence of Adverse Selection as a special form of consumption externality. Consequently, we show that while competitive equilibria always exist, they are not typically incentive ecient. However, as markets for pollution rights can internalize environmental externalities, markets for consumption rights can be designed so as to internalize the consumption externality due to Adverse Selection. Markets for consumption rights amount to requiring that firms oering contracts designated for the ‘low risk types’

Daniel Gottlieb – One of the best experts on this subject based on the ideXlab platform.

  • Perfect Competition in Markets with Adverse Selection
    Econometrica, 2017
    Co-Authors: Eduardo M Azevedo, Daniel Gottlieb
    Abstract:

    This paper proposes a perfectly competitive model of a market with Adverse Selection. Prices are determined by zero‐profit conditions, and the set of traded contracts is determined by free entry. Crucially for applications, contract characteristics are endogenously determined, consumers may have multiple dimensions of private information, and an equilibrium always exists. Equilibrium corresponds to the limit of a differentiated products Bertrand game. We apply the model to establish theoretical results on the equilibrium effects of mandates. Mandates can increase efficiency but have unintended consequences. With Adverse Selection, an insurance mandate reduces the price of low‐coverage policies, which necessarily has indirect effects such as increasing Adverse Selection on the intensive margin and causing some consumers to purchase less coverage.

  • perfect competition in markets with Adverse Selection
    , 2015
    Co-Authors: Eduardo M Azevedo, Daniel Gottlieb
    Abstract:

    Adverse Selection is an important problem in many markets. Governments respond to it with complex regulations: mandates, community rating, subsidies, risk adjustment, and regulation of contract characteristics. This paper proposes a perfectly competitive model of a market with Adverse Selection. Prices are determined by zero-profit conditions, and the set of traded contracts is determined by free entry. Crucially for applications, contract characteristics are endogenously determined, consumers may have multiple dimensions of private information, and an equilibrium always exists. Equilibrium corresponds to the limit of a differentiated products Bertrand game.We apply the model to show that mandates can increase efficiency but have unintended consequences. An insurance mandate can increase Adverse Selection on the intensive margin and lead some consumers to purchase less coverage. Optimal regulation addresses Adverse Selection on both the extensive and the intensive margins, can be described by a sufficient statistics formula, and includes elements that are commonly used in practice.