Abstract
Ralph Bradley (2002) "Is Adverse Selection Simply
Moral Hazard? Evidence from the 1987 Medical Expenditure Survey."
There continues to be a lack of consensus about the presence of adverse
selection in health plan markets. Previous studies conducted tests
using data that covered only a certain segment of the entire population,
and none modeled the role that risk aversion plays in the selection of
plans. Additionally, none of these studies accounted for the
possibility that the probability distribution of future illness could
depend on unobserved "preventative" choices made by the policyholder.
This study accounts for these characteristics and finds that not only is
adverse selection present, but that there is an additional market failure
since individuals are not fully compensated for their efforts at
preventing both illness and accidents.
Last Modified Date: July 19, 2008
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