Testing for Adverse Selection in Insurance Markets

Alma Cohen and Peter Siegelman ()

No 15586, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper reviews and evaluates the empirical literature on adverse selection in insurance markets. We focus on empirical work that seeks to test the basic coverage-risk prediction of adverse selection theory--that is, that policyholders who purchase more insurance coverage tend to be riskier. The analysis of this body of work, we argue, indicates that whether such a correlation exists varies across insurance markets and pools of insurance policies. We discuss various reasons why a coverage-risk correlation may be found in some pools of insurance policies but not in others. We also review the work on the disentangling of adverse selection and moral hazard and on learning by policyholders and insurers.

JEL-codes: D82 G22 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-cta and nep-ias
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Citations: View citations in EconPapers (20)

Published as 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.

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Journal Article: Testing for Adverse Selection in Insurance Markets (2010)
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