When consumers have private information about risk of suffering a loss, or equivalently, if insurers are prohibited from using observable information on risk in underwriting, theoretical models of insurance predict adverse selection. Yet the most common finding in empirical studies is that of no...

A basic prediction of theoretical models of insurance is that if consumers have private information about their risk of suffering a loss there will be a positive correlation between risk and the level of insurance coverage. We test this prediction in the context of the market for private health...