Asymmetric Information – intro and difficulties
The term asymmetric information comes from a situation where one party involved in a transaction knows more information than the other. Information is unevenly distributed between parties in an economic relationship, for example one knows a material fact. It tends to be the seller who has that further information however it is not uncommon for it to also be vice versa. Obviously this can have its disadvantages because one party now has the ability to take advantage of the other.
There tend to be many problems linked to asymmetric information, however the main 2 are: Adverse Selection, this is where we see the use of asymmetric information and immoral behaviour before a transaction is complete (Ex ante information problem) – hidden information. For example a person who has not had optimal health may feel the need to take out a life insurance policy more than someone who is perfectly healthy. The second of the main problems is Moral Hazard, here asymmetric information is again used in an immoral way, but this time it is after the transaction has been complete (Ex post information problem) - hidden action. An example of this is someone who has taken out fire insurance may take greater fire risks or commit arson resulting in a pay out from the insurance company.
Game Theory is an approach to account for interdependence of agents decisions and can be prominent within Asymmetric Information. It is a method of analysing situations in which outcomes of your choices depend on others choices – there is mutual interdependence. When an insurance company decides to reduce or increase their prices, they are not sure how their customers / rivals will react. This leads them to making big decisions ...
... middle of paper ...
...acts can be designed to limit payouts or limit services covered to e.g. up to 3 days hospitalisation.
The RAND Health Insurance Experiment randomized families to insurance plans varying from none (free care) to 95% coinsurance deductible with an excess applied. The participants in the latter used 25 to 30% less services than those in the free plan, and were 23% less likely to be hospitalised. This reduced use of services was however found to be harmful for those who were poor and sick eg hypertension was less controlled.
Insurance companies may also enter into agreements with specific providers and the insured pay extra to use non preferred suppliers.
Efficient contracts ensure P & A maximise profit and risk sharing is optimised. Payoff is required so A is willing to participate and must include inducement for A to perform required tasks not opportunistic behaviour.
Skyrms’ writing goes beyond traditional game theory, and exposes some weaknesses in its application. He rejects the theory’s traditional interpretation of rational actors and actions by discovering some glaring inconsistencies. Skyrms conducted a number of experiments using one-shot prisoners’ dilemmas. The ultimatum the author introduces in the first chapter serves as a simple example of a one-shot prisoners’ dilemma. In the initial form of the example, Skyrms proposes there is a cake that must be divided between two individuals. Each individual is looking to maximize his or her utility, and therefore, wants as much of the cake as possible. However, there is a third party, or what Skryms labels a “referee.” The two individuals must determine the percentage or portion of the cake they want and summit these requests to the referee. The percentages must not exceed 100%, or the referee will consume all the cake. It is therefore not in either parties’ best interest to request a significantly large portion. Additionally, if the total of the two requests is below 100% of the cake, the referee will take the left-over portion. The two parties will then aim to maximize their portion, however the best claim that an individual submits is dependent upon the other party’s claim. There are two interacting optimization problems (Skyrms 3, 4).
Access to healthcare provides financial stability by assuring people that they will not be financially destroyed by injury or illness. Additionally, when people can afford regular medical care they tend to avoid chronic problems and financial stress. In a study provided by the American Medical Students Association, researchers reviewed the costs and benefits of universal health care. They came to the conclusion, after reviewing other articles and statistics from multiple sources, that, “The annual cost of diminished health and shorter life spans of Americans without insurance is $65-$130 billion.” (Chua 5) This comes from people not having adequate health care and then losing their jobs because they...
Miller, H. D. (2009). From volume to value: better ways to pay for health care. Health Affairs
The United States spends vast amounts on its healthcare, while falling short of achieving superiority over other developed nations. One cannot overlook that the deepening recession has left many without jobs and therefore lacking health insurance. According to Fairhall and Steadman, (2009), even though the recession is hard on all, it is worse on the uninsured due to health care and insurance cost rising faster than incomes. Nevertheless, even those with jobs are lacking in health insurance due to employers, who provide insurance, are increasingly dropping their sponsored insurance. Many find that purchasing a health policy or paying for medical care out-of-pocket is cost prohibitive. “Since the recession began in December 2007, the number of unemployed Americans has increased by 3.6 million,” (Fairhall & Steadman, 2009). In 2009 it was stated that approximately 46 million Americans were uninsured, however not all of that number is due to the inability to afford coverage. According to a 2009 story written by Christopher Weaver of Kaiser Health News, 43% of that number should be classified as “voluntarily” uninsured. This subset of uninsured Americans consist of nearly half being young and healthy; therefo...
Ormond, B., Spillman, B., Waidmann, T., Caswell, K., & Tereshchenko, B.. (2011). Potential National and State Medical Care Savings From Primary Disease Prevention. American Journal of Public Health, 101(1), 157-64. Retrieved February 23, 2011, from ProQuest Psychology Journals. (Document ID: 2233850141).
Health insurance is currently an important issue in the United States. Everyday more and more Americans become uninsured due to job loss and an increase in premiums. These Americans add to the ever growing population of 45.7 million people who are currently uninsured (Bialik). Moreover only 27% of those uninsured are under the age of 65 (NCHC). This is staggering considering most of those who are uninsured have, or soon will, suffer from some sort of illness or injury. As a result they will not be able to afford proper treatment. Insurance premiums can range in cost from fifty dollars per month, to fifteen hundred dollars per month (Kreidler). An individual’s premium is determined by factors they choose as well as other factors looked at by their provider. The cost of health insurance in America varies depending on the controllable factors, like particular insurance policies, and uncontrollable factors, like age.
More than one-third of Americans who are between the ages of nineteen and twenty-four are uninsured. This is because most insurance is provided through a person’s job, and entry-level jobs which isn 't available for all young students. In addition, healthcare costs are currently rising faster than inflation, which means that salary increases cannot compensate for the higher prices of health care. Government regulation and a universal system could help keep costs affordable. A universal system would guarantee that everyone could receive health care regardless of preexisting conditions. Consequently, more people would be able to seek preventative services, like checkups, to maintain good health and detect problems early. Too frequently, people avoid taking preventative health measures until something is too late because of how expensive it is. While there 's a debate over how the U.S. should pay for a universal healthcare system, a good idea is to study the ways several other countries have successfully implemented such a system. Europe has a system in which all residents pay into a common fund that creates a pool of money and provides benefits to all. We must figure out a way to effectively adopt a universal healthcare system that provides care to all
Be willing to work with the third-party payer to reduce costs. Open communication between providers and third-party payers during negotiations help the make the complex situation easier. Payers may be willing to offer discounts if providers are willing to agree to the financial and legal terms of the contract.
Q1) Health insurance, whether provided publically or privately, suffers from the problems of moral hazard and adverse selection? How can health insurers get around these problems?
Another factor on the way to success on oligopoly market is understanding and using with advantage the game theory, in particular, prisoner’s dilemma. Game theory, a mathematical approach to strategic behavior, was stated by John von Neumann and Oscar Morgenstern in 1944 (Farris & Happel, 1987, p. 267). Game theory is useful in analyzing the actions in any strategic situation, from a game of chess to the pricing and output decisions of oligopoly firms where firms cooperate or conflict. The classic game is the prisoner’s dilemma:
Approximately 1 in 5 Americans do not have medical insurance and are more likely to lack a usual source of medical care, and more likely to skip routine medical care because of the very high costs, increasing their risk for serious health conditions. For the program, increasing the access to routine medical care and medical insurance are very important steps to achieve their goal of improving America’s health. The access to health services leading health indicators are those with medical insurance and a usual primary care provider. The access to health services in a regular basis can prevent disease and disability, detect and treat health conditions, increase quality of life, decrease the probability of premature death, and increase life
Privacy is the ability of an individual or group to seclude themselves or information about themselves and thereby reveal themselves selectively. The boundaries and content of what is considered private differ among cultures and individuals, but share basic common themes. Privacy is sometimes related to anonymity, the wish to remain unnoticed or unidentified in the public realm. When something is private to a person, it usually means there is something within them that is considered inherently special or personally sensitive. The degree to which private information is exposed therefore depends on how the public will receive this information, which differs between places and over time. Privacy can be seen as an aspect of security — one in which trade-offs between the interests of one group and another can become particularly clear.
Health insurance facilitates entry into the health care system. Uninsured people are less likely to receive medical care and more likely to have poor health. Many Americans are foregoing medical care because they cannot afford it, or are struggling to pay their medical bills. “Adults in the US are more likely to go without health care due to cost” (Schoen, Osborn, Squires, Doty, & Pierson, 2010) Many of the currently uninsured or underinsured are forced accept inferior plans with large out-of-pocket costs, or are not be able to afford coverage offered by private health insurers. This lack of adequate coverage makes it difficult for people to get the health care they need and can have a particularly serious impact on a person's health and stability.
If we take an example, people are more concerned about paying their bills over the phone by their credit card, knowing that there might be someone in the middle intercepting all this information to harm the person. This action has a lot of side effect in the development of new technology. Paying over the phone using a credit card was never there years ago; it used to be only paper bills. Now, not only can we pay though phone call but also we can pay using the computer. All this is new technology that was never there. But if someone is always doing something illegal to affect the direct communication of customer and sellers, there won't be a trust with will be a great bondage between them, which can help the market, and the technology to go to another lever, which is better.
During Nash’s time at Princeton, he worked on his equilibrium theory. In 1950 he earned a Ph.D. with a dissertation on non-cooperative games. This thesis contained what would later be recognized as the Nash Equilibrium. During the next few years he work...