Indicate whether the statement is true or false, and justify your answer.The Rothschild–Stiglitz model predicts that people who own life insurance should have fewer unobserved traits (that is, unobserved by insurance companies) that lead to a higher risk of death when compared against people with the same level of income but who do not own life insurance.
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Indicate whether the statement is true or false, and justify your answer.
The Rothschild–Stiglitz model predicts that people who own life insurance should have fewer unobserved traits (that is, unobserved by insurance companies) that lead to a higher risk of death when compared against people with the same level of income but who do not own life insurance.
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- Multiple Choice Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss. Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks. The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers. To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.Health insurance is normally seen as a good that is most valuable to sick people, since health expenditures are highest for the sick. Yet, in the basic insurance model discussed in this chapter, actuarially-fair health insurance is worth nothing to people who are certain to become sick (p = 1). Why does the standard model produce this result? How is this different from the way real-world insurance markets work?The following is an excerpt from "The Labor Market Effects of Rising Health Insurance Premiums," by Katherine Baicker, Amitabh Chandra. If workers in a certain sector of the economy or those who are married are systematically more likely to have different levels of unobservable characteristics that affect health insurance premiums, then such a correlation is possible. This problem is identical to the standard endogeneity problem in program evaluation, where receipt of the treatment is correlated with unobservable characteristics of the person receiving treatment. A solution to this problem is to instrument for imputed premiums using variables that are uncorrelated with εi and mi but are correlated with imputed health insurance premiums. In our analysis we use state‐level, per‐capita medical malpractice payments as an instrument for imputed premiums. In other words, in order for malpractice payments to be a valid instrument for health insurance premiums, it must be the case that…
- Indicate whether the statement is true or false, and justify your answer.In the Rothschild–Stiglitz model, an individual who is offered a choice between full insurance and no insurance will always choose full insurance if they are risk-averse.Indicate whether the statement is true or false, and justify your answer.Under the typical assumptions of the Rothschild–Stiglitz model, there is nothing that an insurance company can do to distinguish between robust and frail customers.Which of the following statements is FALSE regarding the concept of "adverse selection"? Multiple Choice Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss. Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks. The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers. To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.
- Indicate whether the statement is true or false, and justify your answer.In real life, investments in health can generate long-lasting benefits, but the Grossman model neglects this aspect of health.help all is one question Suppose that within a given city, men between the ages of 19 and 29 fall into one of four health categories: very healthy, healthy, unhealthy, and very unhealthy. As a part of the Patient Protection and Affordable Care Act (PPACA), the government mandates that insurance companies must charge the same premium to all people within a given gender, age, and geographic region. The insurance company must determine the premium it should charge to all people in this category so that it can cover the total cost of care. In order to complete your analysis, make the following assumptions: 1. The insurance company does not incur any costs to run or administer the policies, and it does not make any profit. 2. The population is large enough so that expected values hold at the aggregate level. 3. Anyone who pays the monthly premium receives complete coverage of all medical expenses (in other words, everyone is offered full insurance), 4. All citizens are risk averse and…Indicate whether the statement is true or false, and justify your answer.In a Rothschild–Stiglitz model separating equilibrium, low-risk consumers of insurance are quantity constrained. They cannot buy as much insurance as they want because the insurance company is worried it will lose money on them.
- Which of the following economic models is useful for examining the effects of drinking on cancer likelihood exercise = f (drinker, age, education, employment) cancer likelihood = f (drinker, age, exercise, education) cancer likelihood = f (age, exercise, education, employment)One major premise of the Rothschild–Stiglitz model is that there is a perfectly competitive market for health insurance. Suppose instead that the market is not perfectly competitive, and in fact competitor firms have a hard time entering the market. Could a pooling equilibrium occur in this case? What is it about competition that prevents pooling in the Rothschild–Stiglitz model? No formal proof is necessary, but do make your reasoning clear. Evaluate the following statement: competition in health insurance markets is harmful.Indicate whether the statement is true, false, or unclear, and justify your answer.Cawley and Philipson (1999) find that, in life insurance markets, there is a bulk discount (that is, people buying larger policies pay lower per unit prices). They conclude that this finding is inconsistent with the Rothschild–Stiglitz model.