TY  - JOUR
AU  - Einav,Liran
AU  - Finkelstein,Amy
AU  - Cullen,Mark R.
TI  - Estimating Welfare in Insurance Markets Using Variation in Prices
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14414
PY  - 2008
Y2  - October 2008
UR  - http://www.nber.org/papers/w14414
L1  - http://www.nber.org/papers/w14414.pdf
N1  - Author contact info:
Liran Einav
Stanford University
Department of Economics
579 Serra Mall
Stanford, CA  94305-6072
Tel: 650/723-3704
Fax: 650/725-5702
E-Mail: leinav@stanford.edu

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

Mark R. Cullen
Stanford University School of Medicine
1265 Welch Rd X338
Stanford, CA 94305
Tel: 650.721.6209
Fax: 650.723.8596
E-Mail: mrcullen@stanford.edu
AB  - We show how standard consumer and producer theory can be used to estimate welfare in insurance markets with selection. The key observation is that the same price variation needed to identify the demand curve also identifies how costs vary as market participants endogenously respond to price. With estimates of both the demand and cost curves, welfare analysis is straightforward. We illustrate our approach by applying it to the employee health insurance choices at Alcoa, Inc. We detect adverse selection in this setting but estimate that its quantitative welfare implications are small, and not obviously remediable by standard public policy tools.
ER  -