TY  - JOUR
AU  - Fang,Hanming
AU  - Kung,Edward
TI  - How Does Life Settlement Affect the Primary Life Insurance Market?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15761
PY  - 2010
Y2  - February 2010
UR  - http://www.nber.org/papers/w15761
L1  - http://www.nber.org/papers/w15761.pdf
N1  - Author contact info:
Hanming Fang
Department of Economics
University of Pennsylvania
3718 Locust Walk
Philadelphia, PA 19104
Tel: 215-898-7767
Fax: 215-573-2057
E-Mail: hanming.fang@econ.upenn.edu

Edward Kung
Department of Economics
UCLA
Los Angeles, CA
E-Mail: ekung@econ.ucla.edu
AB  - We study the effect of the life settlement market on the structure of long term contracts offered by the primary market for life insurance, as well as the effect on consumer welfare, using a dynamic model of life insurance with one sided commitment and bequest-driven lapsation. We show that the presence of life settlement affects the extent as well as the form of dynamic reclassification risk insurance in the equilibrium of the primary insurance market, and that the settlement market generally leads to lower consumer welfare. We also examine the primary insurers' response to the settlement market when they can offer enriched contracts by specifying optimally chosen cash surrender values (CSVs).
ER  -