School of Economics
Institutional Affiliation: Peking University
NBER Working Papers and Publications
|March 2017||Life Insurance and Life Settlement Markets with Overconfident Policyholders|
with Hanming Fang: w23286
We analyze how the life settlement market – the secondary market for life insurance – may affect consumer welfare in a dynamic equilibrium model of life insurance with one-sided commitment and overconfident policyholders. As in Daily et al. (2008) and Fang and Kung (2010), policyholders may lapse their life insurance policies when they lose their bequest motives; but in our model the policyholders may underestimate their probability of losing their bequest motive, or be overconfident about their future mortality risks. For the case of overconfidence with respect to bequest motives, we show that in the absence of life settlement overconfident consumers may buy “too much” reclassification risk insurance for later periods in the competitive equilibrium. In contrast, when consumers are overcon...
|October 2016||Multidimensional Private Information, Market Structure and Insurance Markets|
with Hanming Fang: w22773
A large empirical literature found that the correlation between insurance purchase and ex post realization of risk is often statistically insignificant or negative. This is inconsistent with the predictions from the classic models of insurance a la Akerlof (1970), Pauly (1974) and Rothschild and Stiglitz (1976) where consumers have one-dimensional heterogeneity in their risk types. It is suggested that selection based on multidimensional private information, e.g., risk and risk preference types, may be able to explain the empirical findings. In this paper, we systematically investigate whether selection based on multidimensional private information in risk and risk preferences, can, under different market structures, result in a negative correlation in equilibrium between insurance coverag...
Published: Hanming Fang & Zenan Wu, 2018. "Multidimensional private information, market structure, and insurance markets," The RAND Journal of Economics, vol 49(3), pages 751-787.