Advantageous effects of regulatory adverse selection in the life insurance market

Mattias K. Polborn, Michael Hoy, Asha Sadanand

Research output: Contribution to journalArticlepeer-review

Abstract

We analyse the effects of regulations prohibiting the use of information to risk-rate premiums in a life insurance market. New information derived from genetic tests is likely to become increasingly relevant in the future. Many governments prohibit the use of this information, thereby generating 'regulatory adverse selection'. In our model, individuals early in their lives know neither their desired level of life insurance later in life nor their mortality risk, but learn both over time. We obtain both positive and normative results that differ qualitatively from those in standard, static models. Legislation prohibiting the use of genetic tests for ratemaking may increase welfare.

Original languageEnglish (US)
Pages (from-to)327-354
Number of pages28
JournalEconomic Journal
Volume116
Issue number508
DOIs
StatePublished - Jan 2006

ASJC Scopus subject areas

  • Economics and Econometrics

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