Measuring Ex-Ante Welfare in Insurance Markets / Nathaniel Hendren.

Format:

Book

Author/Creator:

Hendren, Nathaniel.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24470.

NBER working paper series no. w24470

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

The willingness to pay for insurance captures the value of insurance against only the risk that remains when choices are observed. This paper develops tools to measure the ex-ante expected utility impact of insurance subsidies and mandates when choices are observed after some insurable information is revealed. The approach retains the transparency of using reduced-form willingness to pay and cost curves, but it adds one additional sufficient statistic: the difference in marginal utilities between insured and uninsured. I provide an approach to estimate this statistic that uses only reduced-form willingness to pay and cost curves, combined with either a measure of risk aversion. I compare the approach to structural approaches that require fully specifying the choice environment and information sets of individuals. I apply the approach using existing willingness to pay and cost curve estimates from the low-income health insurance exchange in Massachusetts. Ex-ante optimal insurance prices are roughly 30% lower than prices that maximize market surplus. While mandates would increase deadweight loss, the results suggest they would actually increase ex-ante expected utility.

Notes:

Print version record

March 2018.