Working Paper: CEPR ID: DP15285
Authors: Nathan Hendren; Camille Landais; Johannes Spinnewijn
Abstract: Should choice be offered in social insurance programs? The paper presents a conceptual framework that identifies the key forces determining the value of offering choice, reviews some existing evidence on these forces, and aims to guide further empirical research in different insurance domains. The value of offering choice is higher the larger the variation in individual valuations, but gets reduced by both selection on risk and selection on moral hazard. The implementation of choice-based policies is further challenged by the presence of adverse selection and choice frictions or the obligation to offer basic uncompensated care. These inefficiencies can be seen as externalities, which do not rationalize the absence of providing choice per se, but point to the need for regulatory policies and the potential value of corrective pricing à la Pigou.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Variation in individual valuations (D46) | Value of offering choice in social insurance programs (G52) |
| Risk selection (G52) | Value of offering choice in social insurance programs (G52) |
| Moral hazard (G52) | Value of offering choice in social insurance programs (G52) |
| Adverse selection (D82) | Provision of choice in social insurance programs (H55) |
| Choice frictions (D79) | Provision of choice in social insurance programs (H55) |
| Regulatory policies (G18) | Address inefficiencies in choice provision (D61) |
| Corrective pricing (D40) | Address inefficiencies in choice provision (D61) |
| Pigouvian subsidies (H23) | Welfare enhancement (I38) |
| Selection on willingness to pay (D11) | Optimal pricing strategies (D40) |
| Selection on moral hazard (D82) | Optimal pricing strategies (D40) |