Journal of Political Economy Vol. 102 No. 2 1994
Evidence on Adverse Selection: Equilibrium Signaling and Cross-Subsidization in the Insurance Market
Abstract
The configuration of equilibrium in the market for automobile collision insurance is examined empirically by representing the premium-deductible menu and the demand function as a standard hedonic system. Using contractual data from a representative insurer, we estimate a reduced-form hedonic premium equation and the inverse of the marginal bid equation for insurance coverage. The data reveal an equilibrium with adverse selection and market signaling but lead us to reject the hypothesis that high risks receive contracts subsidized by low risks.
- DOI
- 10.1086/261930
- Volume
- 102
- Issue
- 2
- Pages
- 236-257
- Language
- en
- Sources
- openalex crossref