Moral Hazard, Adverse Selection and Health Expenditures: A Semiparametric Analysis

Abstract

Theoretical models predict asymmetric information in health insurance markets may generate inefficient outcomes due to adverse selection and moral hazard. However, previous empirical research has found it difficult to disentangle adverse selection from moral hazard in health care. We empirically study this question by a using unique data set with confidential information from a large self-insured employer to estimate a structural model of the demand for health insurance and medical care. We propose a two-step semi-parametric estimation strategy that builds on the work on identification and estimation of auction models. We find significant evidence of moral hazard and adverse selection.