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 the 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 demand for medical care and risk preferences. I explore this issue using individual survey data on insurance enrollment and medical spending in Vietnam that contain detailed information about the structure of the household.
The reduced-form evidence suggests that income, own-price and cross-member substitution effects play important roles in the demand for medical care, which affects a household's selection of members into insurance. I then develop and estimate a model of household insurance bundle choice and medical utilization that accounts for these features.
The results suggest that much 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: Hold-up risks can be mitigated by creating asymmetric information about the investment
using information control. In this paper, we study the investment level and
welfare achievable with information control and the information structure that implements
them. Our main result identifies a separation between information that creates
ex-ante investment incentive and information that causes ex-post inefficiency. Contrary
to results suggested in the literature, ex-ante investment incentive is only limited
by the relative cost and benefit of the investment, while ex-post inefficiency can be
eliminated without compromising the ex-ante investment incentive.
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 does not resonate with 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.