The Welfare Cost of Asymmetric Information: Evidence from the U.K. Annuity Market

  title={The Welfare Cost of Asymmetric Information: Evidence from the U.K. Annuity Market},
  author={Liran Einav and Amy N. Finkelstein and Paul Schrimpf},
  journal={Microeconomic Theory eJournal},
Much of the extensive empirical literature on insurance markets has focused on whether adverse selection can be detected. Once detected, however, there has been little attempt to quantify its welfare cost, or to assess whether and what potential government interventions may reduce these costs. To do so, we develop a model of annuity contract choice and estimate it using data from the U.K. annuity market. The model allows for private information about mortality risk as well as heterogeneity in… 

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