Abstract: This paper explores the use of bundling to reduce adverse selection in insurance markets and its application to social health insurance programs. When the choice to buy health insurance is made at the household level, bundling insurance policies of household members eliminates the effect of adverse selection within a household since the household can no longer select only sick members to enroll. However, this can exacerbate adverse selection across households as healthier households might choose to drop out of the insurance market. The net effect of this trade-off depends on the characteristics of the household's demand for medical care and its risk preferences. I explore this issue using individual survey data on insurance enrollment and medical spending in Vietnam, which contains detailed information about the structure of the household. The reduced form evidence from the data suggests that income, own-price and cross-price effects play important roles in the demand for medical care, which translates into a non-linear relationship between a household's willingness to pay for individual insurance and the bundle. I then develop and estimate a model of household insurance bundle choice and medical utilization that takes into account these features. The results suggest that most of the adverse selection is concentrated within the household. Counterfactual analysis reveals that under optimal pricing, household bundling yields significantly higher consumer surplus and insurance enrollment than individual purchase. Furthermore, the insurance market is less susceptible to complete unraveling under household bundling.
Abstract: Bundle discounts are ubiquitous in many product markets. However, preliminary analysis of the ACA health exchange shows that many insurers do not provide a bundle discount when a couple jointly purchase insurance. Such discounts are more often observed in states with lower average premium and fewer insurers. This differs from the usual intuition of the bundling literature that firms almost always have an incentive to offer a bundle discount regardless of the degree of competition in the market. In this paper, I empirically show that adverse selection is the key reason why firms in some markets choose not to bundle. When a firm unilaterally offers a bundle discount, it risks attracting couples with worse health types from other firms. This adverse effect from bundle discounts is worsened when firms are more closely positioned in the product space. In the counterfactual exercise, I explore how a premium subsidy to reward couple purchase from the government could improve both consumer and producer surplus by mitigating adverse selection.
Abstract: We study optimal information control in the hold-up problem with binary investment. A signal structure, which is publicly determined before investment, generates signals about the investment. We characterize the set of investment probability and social welfare that can be achieved in equilibrium, and the signal structure that implements them. The optimal signal structure is generically unique and takes a simple form which eliminates ex-post inefficiency arising from trade breakdown. Contrary to results suggested in the existing literature, there is no tradeoff between creating ex-ante investment incentive and eliminating ex-post inefficiency.