The Review of Economics and Statistics Vol. 105 No. 2 2023

The Two-Margin Problem in Insurance Markets

Michael Geruso¹; Timothy Layton²; Grace McCormack³; Mark Shepard²

¹ University of Texas at Austin and NBER · ² Harvard University and NBER · ³ Harvard University

Abstract

Insurance markets often feature consumer sorting along both an extensive margin (whether to buy) and an intensive margin (which plan to buy). We present a new graphical theoretical framework that extends a workhorse model to incorporate both selection margins simultaneously. A key insight from our framework is that policies aimed at addressing one margin of selection often involve an economically meaningful trade-off on the other margin in terms of prices, enrollment, and welfare. Using data from Massachusetts, we illustrate these trade-offs in an empirical sufficient statistics approach that is tightly linked to the graphical framework we develop.

DOI

10.1162/rest_a_01070

Volume

105

Issue

2

Pages

237-257

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓