TY  - JOUR
AU  - Finkelstein,Amy
AU  - McGarry,Kathleen
AU  - Sufi,Amir
TI  - Dynamic Inefficiencies in Insurance Markets: Evidence from long-term care insurance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11039
PY  - 2005
Y2  - January 2005
UR  - http://www.nber.org/papers/w11039
L1  - http://www.nber.org/papers/w11039.pdf
N1  - Author contact info:
Amy Finkelstein
Department of Economics
MIT E52-274C
50 Memorial Drive
Cambridge, MA 02142
Tel: 617/253-4149
Fax: 617/868-2742
E-Mail: afink@mit.edu

Kathleen M. McGarry
Department of Economics
University of California, Los Angeles
Los Angeles, CA 90095-1477
Tel: 310-206-2833
Fax: 310-825-9528
E-Mail: mcgarry@econ.ucla.edu

Amir Sufi
University of Chicago
Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-6148
Fax: 773/702-0458
E-Mail: amir.sufi@chicagobooth.edu
AB  - We examine whether unregulated, private insurance markets efficiently provide insurance against reclassification risk (the risk of becoming a bad risk and facing higher premiums). To do so, we examine the ex-post risk type of individuals who drop their long-term care insurance contracts relative to those who are continually insured. Consistent with dynamic inefficiencies, we find that individuals who drop coverage are of lower risk ex-post than individuals who were otherwise-equivalent at the time of purchase but who do not drop out of their contracts. These findings suggest that dynamic market failures in private insurance markets can preclude the efficient provision of insurance against reclassification risk.
ER  -