De Donder, Philippe, Leroux, Marie-Louise and Salanié, François (2023) Advantageous selection without moral hazard. TSE Working Paper, n. 22-1334, Toulouse.

[thumbnail of wp_tse_1334.pdf]
Download (1MB) | Preview


Advantageous selection occurs when the agents most eager to buy insurance are also the cheapest ones to insure. Hemenway (1990) links it to differences in risk-aversion among agents, implying different prevention efforts, and finally different riskinesses. We argue that it may also appear when agents share the same attitude towards risk, and in the absence of moral hazard. Using a standard asymmetric information setting satisfying a single-crossing property, we show that advantageous selection may occur when several contracts are offered, or when agents also face a non-insurable background risk, or when agents face two mutually exclusive risks that are bundled together. We illustrate this last effect in the context of life care annuities, a product bundling long-term care insurance and annuities, by constructing a numerical example based on Canadian survey data.

Item Type: Monograph (Working Paper)
Language: English
Date: 17 April 2023
Place of Publication: Toulouse.
Uncontrolled Keywords: Propitious selection, Positive or negative correlation property, Contract bundling, Long-term care insurance, Annuity
JEL Classification: D82 - Asymmetric and Private Information
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole.
Site: UT1
Date Deposited: 18 May 2022 07:31
Last Modified: 22 May 2023 13:25
OAI Identifier:
View Item


Downloads per month over past year