Private Information and Insurance Rejections.

ABSTRACT: Across a wide set of non-group insurance markets, applicants are rejected based on observable, often high-risk, characteristics. This paper argues that 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 o

SUBMITTER: Hendren N 

PROVIDER: S-EPMC3812958 | biostudies-literature | 2013 Sep

REPOSITORIES: biostudies-literature