The economics of costly risk sorting in competitive insurance markets

摘要: In the last twenty years, state and federal policy makers have often been asked to restrict criteria, or tests, on which insurance companies may base their risk categorization. Insurance responded that it is fair reasonable charge groups with different probabilities of death accident actuarially rates for each group. The argue if they are not allowed make these distinctions, result will be adverse selection low-risk individuals self-insuring a greater extent than efficient high-risk overinsuring. This paper analyzes efficiency companies’ incentives use certain types sorting devices-those themselves costly society. Genetic screening, tests HIV (AIDS) virus, criteria require extensive monitoring behavior (e.g., cigarette smoking habits) all real resources separate groups. Such devices do necessarily enhance efficiency. Though decline in does increase total surplus, this more offset by resource costs associated determining individuals’ levels. Still, test used private markets, because gains from come just surplus but also include transfer wealth highrisk people. So long as people would made better off distinguishing themselves, so, competitive firms find profitable offer them lower rates. analysis tradition Spence’s (1973) signalling theory.’ Just education yields return social model, next section demonstrates risk-sorting society whole. basic point inefficient risksorting has Cracker Snow (1986) who shown price/quantity bundling induce self-selective sorting, proposed Rothschild Stiglitz (1976), imposed inefficiently. Section II gives some intuition results. Sections III IV extend two directions. considers role consumer’s information about his own