Measuring Ex-Ante Welfare in Insurance Markets
نویسندگان
چکیده
Estimates of willingness to pay in adversely selected markets tend to understate the ex-ante (or utilitarian) willingness to pay for insurance. This paper derives an ’ex-ante’ willingness to pay curve that measures welfare from behind the veil of ignorance. I provide a strategy to estimate this curve using market choices and costs, combined with a measure of risk aversion. In examples motivated by previous literature in health insurance, an ex-ante welfare perspective can generate different conclusions about the optimal size of insurance markets, the welfare cost of adverse selection, and the desirability of mandates relative to competitive markets.
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