Research Details

Abstract

We study a general screening model that encompasses the problem facing a price-setting insurer that offers vertically differentiated contracts to consumers with multiple dimensions of private information. We combine theory and calibrated numerical analysis to provide three novel results: (i) even in the presence of both selection and moral hazard, optimal menus satisfy intuitive conditions that generalize the literature on multidimensional screening and shed light on insurer incentives; (ii) the insurer's problem with an infinite number of contracts is well-approximated with only a small set of contracts; and (iii) under conditions that are economically innocuous in our setting, the problem becomes dramatically simpler and can be solved using familiar graphical analysis. We illustrate the use of the simplified problem to provide intuition about optimal menus, contrast the incentives of a monopolist and a social planner, and evaluate policy interventions in a monopoly market.

Type

Working Paper

Author(s)

Jeroen Swinkels, Hector Chade, Victoria Marone, Amanda Starc

Date Published

2022

Citations

Swinkels, Jeroen, Hector Chade, Victoria Marone, and Amanda Starc. 2022. Multidimensional Screening and Menu Design in Health Insurance Markets.

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