Can Employers Solve the Adverse Selection Problem for Insurers?
نویسنده
چکیده
Establishing the existence of equilibrium in insurance markets has always been a challenging task for economists due to imperfect information. As illustrated by Rothschild and Stiglitz (1976), imperfect information may lead to complete market failure. This paper extends the standard model of adverse selection by introducing employers that choose the set of policies that are offered to consumers. Introducing employers allows for the existence of multiple pooling and a unique separating equilibrium. The key to these results is that the financial incentives of the employers in the model differ from the financial incentives of the insurance companies. Data on age and insurance premiums from the 1987 National Medical Expenditure Survey provides evidence of pooling in the employer-provided health insurance market. JEL classification: D82; I18
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