HKS Faculty Research Working Paper Series
HKS Working Paper No. RWP19-035
November 2019
Abstract
Insurance markets often feature consumer sorting along both an extensive margin (whether to buy) and an intensive margin (which plan to buy). We present a new graphical theoretical frame-work that extends a workhorse model to incorporate both selection margins simultaneously. A key insight from our framework is that policies aimed at addressing one margin of selection often involve an economically meaningful trade-off on the other margin in terms of prices, enrollment,and welfare. Using data from Massachusetts, we illustrate these trade-offs in an empirical sufficient statistics approach that is tightly linked to the graphical framework we develop.
Citation
Shepard, Mark, Michael Geruso, Timothy J. Layton, and Grace McCormack. "The Two Margin Problem in Insurance Markets." HKS Faculty Research Working Paper Series RWP19-035, November 2019.