Adverse Selection and Consumer Behavior in the Viatical Settlement Market

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Abstract/Contents

Abstract: The similarities between the viatical settlement market and the standard market for insurance evoke the question of what effect asymmetric information, an oft discussed topic surrounding standard markets, might have in the viatical settlement market. In order to examine the possibility of the existence of adverse selection in this market, as well as to gain a better understanding of the dynamics of the market in general, I analyze a model describing consumer behavior in this market. Applying the results of my analysis to the logic of a classic adverse selection model, I develop and implement a test of adverse selection in the viatical settlement market using nationally representative data on viatical transactions. Additionally, I extract a new prediction from the consumer behavior model relating the probability of selling life insurance to both the policy’s face value and the policyholder’s mortality risk, and I test this prediction against data on HIV+ individuals. In the end I find that there is no empirical evidence for adverse selection in the viatical settlement market, and that the consumer behavior model is largely consistent with the data.

Type of resource	text
Date created	May 2007

Author	Dizon-Ross, Elise
Primary advisor	Bhattacharya, Jay
Degree granting institution	Stanford University, Department of Economics

Subject	Stanford Department of Economics
Subject	life insurance
Subject	mortality risk
Subject	Rothschild Stiglitz model
Subject	asymmetric information
Genre	Thesis

Location	https://purl.stanford.edu/rp510cc1204

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Preferred Citation: Dizon-Ross, Elise. (2007). Adverse Selection and Consumer Behavior in the Viatical Settlement Market. Stanford Digital Repository. Available at: https://purl.stanford.edu/rp510cc1204

Stanford University, Department of Economics, Honors Theses

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