Class 7: Adverse Selection and Pricing

Objectives

• Explain and draw graphically a simplified insurance market with adverse selection
• Calculate the insurer loss or profit at a given price
• Calculate the equilibrium price in the market under some assumptions on insurer profitability
• Solve for the subsidy amount or penalty amount that would ensure full insurance in a market

Activities

• In-class problem on adverse selection. The worksheet is here.
• New report on U.S. health care: U.S. Health Care from a Global Perspective