De Donder, Philippe, Leroux, Marie-Louise and Salanié, François (2023) Advantageous selection without moral hazard. Journal of Risk and Uncertainty.

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Identification Number : 10.1007/s11166-023-09412-4


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: Article
Language: English
Date: May 2023
Refereed: Yes
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)
Site: UT1
Date Deposited: 27 Apr 2023 10:27
Last Modified: 28 Aug 2023 07:33
OAI Identifier:
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