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RISK AVERSION AND THE WILLINGNESS TO PAY FOR INSURANCE: A CAUTIONARY DISCUSSION OF ADVERSE SELECTION
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ABSTRACT
Textbooks frequently describe adverse selection as an almost inevitable feature of insurance markets with heterogeneous buyers and asymmetric information. But if low-risk applicants are more risk averse than their high-risk counterparts, the former may be as willing or more willing than the latter to purchase insurance at any given price. The present article discusses this possibility in several forms suitable for different levels of instruction, to help bridge the gap between...
Related newspaper, magazine, and journal articles from HighBeam Research
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Adverse selection in insurance markets: an exaggerated threat.
Yale Law Journal
; INTRODUCTION The phrase adverse selection was originally coined by insurers to describe the process by which insureds utilize private knowledge of their own riskiness when deciding to buy or forgo insurance. (1) If A knows he will die tomorrow (but his insurer does not), life insurance that is
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Mandatory pensions and the intensity of adverse selection in life insurance markets.
Journal of Risk and Insurance
; ABSTRACT This article examines the impact of varying mandatory pensions on saving, life insurance, and annuity markets in an adverse selection economy. Under reasonable restrictions, we find unambiguous effects on market size, participation rates, and equilibrium prices. The degree of adverse
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Evidence of adverse selection in crop insurance markets.
Journal of Risk and Insurance
; This article analyzes farmers' choices of crop insurance contracts and offers empirical evidence of adverse selection in crop insurance markets. Farmers' risk characteristics, their level of income, and the cost of insurance significantly affect the choice of yield and revenue insurance products as
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Adverse selection, seller effort, and selection bias.
Southern Economic Journal
; 1. Introduction Researchers use several approaches to identify adverse selection. (1) Genesove (1993) tests the proposition that, in a lemons market, prices inversely relate with observable seller characteristics that correlate with seller incentives to select goods adversely. Genesove examines the
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THE PROBLEM OF ASYMMETRIC INFORMATION: A SIMULATION OF HOW INSURANCE MARKETS CAN BE INEFFICIENT
Risk Management and Insurance Review
; ABSTRACT The concept of adverse selection is discussed in virtually all academic insurance textbooks. However, undergraduate students have rarely had the experience of purchasing insurance which may limit their ability to fully comprehend the market inefficiencies created by asymmetric information.
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