Does Selection in Insurance Markets Always Favor Buyers?

MPRA Paper from University Library of Munich, Germany

Abstract: This paper provides empirical evidence of advantageous selection in insurance markets. By using a novel insurance setting where moral hazard is not a concern, I am able to overcome an important obstacle in most studies of selection: the inability to distinguish moral hazard from selection. In the US market for area yield crop insurance, payouts are based on average county yields. Moreover, area yield insurance is only offered in counties where no farmer is large enough to affect the mean yield. I ﬁnd that area yield insurance takeup is higher when average yields in the county are higher and show that this effect is not being driven by prices. This suggests that the net selection into these plans thus favors insurance providers, not buyers. One possible mechanism is that providers have better information about aggregate yields. Another is that the desirability of other, non-area yield, insurance options changes, a potentially important but previously overlooked driver of selection.

Keywords: Insurance; Selection; Crop Insurance (search for similar items in EconPapers)
JEL-codes: G22 Q10 (search for similar items in EconPapers)
Date: 2012-05-06
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/53583/1/MPRA_paper_53583.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:53583

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().