Working Paper: NBER ID: w27842
Authors: Nathaniel 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 in- surance 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 imple- mentation 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: H0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| greater variation in individual valuations of insurance (G52) | higher value of offering choice (D46) |
| adverse selection (D82) | diminished value of offering choice (D11) |
| moral hazard (G52) | diminished value of offering choice (D11) |
| individuals opting for supplemental coverage (G52) | higher costs on the insurer (G52) |
| adverse selection (D82) | absence of choice not justified (D10) |
| regulatory policies and corrective pricing (L11) | mitigate inefficiencies (D61) |
| choice can increase welfare (D60) | requires careful design of contract spaces and pricing structures (D47) |