English, Article edition: Asymmetric Information, Long-Term Care Insurance, and Annuities: The Case for Bundled Contracts David C. Webb

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Physical Description
  • article
Language
  • English

Edition details

Title
  • Asymmetric Information, Long-Term Care Insurance, and Annuities: The Case for Bundled Contracts
Author
  • David C. Webb
Physical Description
  • article
Notes
  • This article examines the markets for long-term care insurance and annuities when there is asymmetric information and there are costs of administering contracts. Individuals differ in terms of their risk aversion. Risk-averse individuals take more care of their health and are relatively high risk in the annuities market and relatively low risk in the long-term care insurance market. In the long-term care insurance market, both separating and partial-pooling equilibria are possible. However, in the stand-alone annuity market, only separating equilibria are possible. We show, consistent with the extant empirical research, that in the presence of administration costs the more risk-averse individuals may buy relatively more long-term care insurance and more annuity coverage. Under the same assumptions, we show that equilibria exist with bundled contracts that Pareto dominate the outcomes with stand-alone contracts and are robust to competition from stand-alone contracts. The remaining empirical puzzle is to explain why bundled contracts are such a small share of the voluntary annuity market. Copyright (c) The Journal of Risk and Insurance, 2009.
  • RePEc:bla:jrinsu:v:76:y:2009:i:1:p:53-85
Language
  • English
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