The Role of Commitment in Dynamic Contracts : Evidence from Life Insurance †

@inproceedings{Hendel2001TheRO,
  title={The Role of Commitment in Dynamic Contracts : Evidence from Life Insurance †},
  author={Igal Hendel and Alessandro Lizzeri},
  year={2001}
}
We use data from the life insurance industry to study the properties of long term contracts in a world where buyers cannot commit to a contract. We develop a theoretical model that captures the main features of this industry, in particular, how contracts are designed to deal with reclassification risk. The data is especially suited for a test of the theory since it includes information on the entire profile of future premiums. The lack of commitment by consumers shapes contracts in the way… CONTINUE READING
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