SMU SOE Seminar (Dec 6, 2019): Endogenous Information Acquisition and Insurance Choice

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ABSTRACT Insurance contracts are complicated and individuals may choose how much time and effort to spend understanding and comparing plans. Building on the rational inattention litera-ture, we develop a parsimonious demand model in which individuals choose how much to research difficult to observe characteristics, affecting the accuracy of their beliefs and sub-sequent choices. The model predicts that individuals acquire more information when the stakes are higher. Using prescription drug insurance data, we show that the model provides an explanation for behavior that is inconsistent with standard demand models. We esti-mate an empirical model of insurance demand and find that the marginal cost of acquiring information is higher for older enrollees and those with less previous experience choosing a plan. Counterfactual analysis sheds light on the welfare losses due to information fric-tions and how policy makers can restrict plan choice or decrease cost sharing to simplify decision-making and raise welfare. Keywords: Insurance, information frictions, rational inattention. JEL Codes: L15, I13, D83. Click here to view the paper. Click here to view the CV.
		PRESENTER Jihye Jeon Boston University
		RESEARCH FIELDS Industrial Organization Applied Microeconometrics
		DATE: 6 December 2019 (Friday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903