NATIONAL BUREAU OF ECONOMIC RESEARCH
Department of Economics
Texas A&M University
College Station, TX 77843-4228
NBER Working Papers and Publications
|November 2013||Multiple Dimensions of Private Information in Life Insurance Markets|
with Li Gan: w19629
Conventional theory for private information of adverse selection predicts a positive correlation between insurance coverage and ex post risk. This paper shows the opposite in the life insurance market despite the clear evidence of private information on mortality risk. The reason for this contradictory result is the existence of multiple dimensions of private information. The paper discusses how the private information on insurance preference offsets the effect of the private information on mortality risk. A mixture density model is applied to disentangle these two effects.