Proposed modified probit model incorporating non-parametric density estimation: how to measure asymmetric information in the health insurance market?

Abstract

On the basis of the theory of Chiappori and Salanie (2000), this paper proposes a simple modified bivariate Probit model incorporating non-parametric kernel density estimation. The model is applied to test asymmetric information in a health insurance market, using MEPS96 data.1 Results show that asymmetric information (whether moral hazard or adverse selection) exists between the contract of insurance coverage, and some non-emergency visits services, which appear to support the conclusions of Cardon and Hendel (2001). It is also shown how this non-parametric approach plays an important role in the delicate task of correctly testing, by computing generalized residuals, the existence of asymmetric information.

Child Health Status in Cameroon: Mitigating Role of Information Asymmetry

“…The study further recommended a shift in focus from information sharing to interpretation schemes sharing. Aoki (2005) carried out a study in UK and sought to know how to measure asymmetric information in the health insurance market by identifying the ways of measuring information asymmetry. The study used a simple modified bivariate Probit model incorporating non-parametric kernel density estimation to test asymmetric information in a health insurance market.…”

Adverse selection in the health insurance market: some empirical evidence

“…This class of models embodies the normality assumption for the conditional probability of the binary dependent variable given observables. Aoki [1] followed a similar testing strategy but considered non-parametric estimation procedures. The study was based on the Medical Expenditure Panel Survey data in 1996 and found some evidence for asymmetric information.…”

“…1 Results for adverse selection are scant and found only in some of the papers that analyze specific segments of the markets. Within the second group, the evidence on adverse selection was mixed.…”

“…Empirical papers in the more specific context of health insurance can be divided in two categories: studies that concentrate on specific parts of the general health market [7,8,20], and those in which the market is national and general in nature [1,3,4,17]. 1 Results for adverse selection are scant and found only in some of the papers that analyze specific segments of the markets.…”