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Volume 4, No. 1,
April 2005
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Risk
Signaling in the Health Insurance Market
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Chu-Shiu Li*
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Department of Economics, Feng Chia
University, Taiwan
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Abstract
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This
paper analyzes equilibrium health insurance premium
dependencies on signaling costs given individual health
states, risk types, and risk type attributes. Since
precise determination of an individual's premium is
costly, insurers can categorize insureds based on
relative screening costs. We show for two risk types,
the equilibrium premium is either community-rated or
risk-rated depending on screening costs. For multiple
risk types, both policies may be concurrently available
in equilibrium.
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Key words
:
adverse selection; separating
equilibrium; pooling equilibrium;
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signaling costs
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JEL classification
:
G22; I11
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