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12:30 - 13:45 24 October 2012

"Private Information and Insurance Rejections"

Location

IFS Conference Room | Institute for Fiscal Studies (link Map)
7 Ridgmount Street | London | WC1E 7AE |

Open to: Academic | Student
Ticketing: Open

Speaker information

Nathan Hendren, Harvard University

Across a wide set of non-group insurance markets, applicants are rejected based on observable, often high-risk, characteristics. This paper argues private information, held by the potential applicant pool, explains rejections. I formulate this argument by developing and testing a model in which agents may have private information about their risk. I first derive a new no-trade result that theoretically explains how private information could cause rejections. I then develop a new empirical methodology to test whether this no-trade condition can explain rejections. The methodology uses subjective probability elicitations as noisy measures of agents beliefs. I apply this approach to three non-group markets: long-term care, disability, and life insurance. Consistent with the predictions of the theory, in all three settings I find significant amounts of private information held by those who would be rejected;


Contact

Institute for Fiscal Studies
020 7291 4800 |


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