We provide evidence of advantageous selection in the Medigap insurance market and analyze its sources. Conditional on controls for Medigap prices, those with Medigap spend, on average, $4,000 less on medical care than those without. But if we condition on health, those with Medigap spend $2,000 more. The sources of this advantageous selection include income, education, longevity expectations, and financial planning horizons, as well as cognitive ability. Conditional on all these factors, those with higher expected medical expenditures are more likely to purchase Medigap. Risk preferences do not appear as a source of advantageous selection; cognitive ability is particularly important.

/pdf/sources-of-advantageous-selection-evidence-from-the-medigap-3e09wk3c2u.pdf

Sources of Advantageous Selection: Evidence from the Medigap Insurance Market

While the too-big-to-fail guarantee is explicitly a part of bank regulation in many countries, this paper shows that bank closure policies also suffer from an implicit too-many-to-fail problem: when the number of bank failures is large, the regulator finds it ex-post optimal to bail out some or all failed banks, whereas when the number of bank failures is small, failed banks can be acquired by the surviving banks. This gives banks incentives to herd and increases the risk that many banks may fail together. The ex-post optimal regulation may thus be time-inconsistent or sub-optimal from an ex-ante standpoint. In contrast to the too-big-to-fail problem which mainly affects large banks, we show that the too-many-to-fail problem affects small banks more by giving them stronger incentives to herd.

Too Many to Fail - an Analysis of Time Inconsistency in Bank Closure Policies

This paper studies bank failures in 21 emerging market countries in the 1990s. By using a competing risk hazard model for bank survival, we show that a government is less likely to take over or close a failing bank if the banking system is weak. This Too- Many-to-Fail effect is robust to controlling for macroeconomic factors, financial crises, the Too-Big-To-Fail effect, domestic financial development, and concerns due to systemic risk and information spillovers. The paper also shows that the Too-Many-to-Fail effect is stronger for larger banks and when there is a large government budget deficit.

Too Many to Fail? Evidence of Regulatory Forbearance When the Banking Sector Is Weak

This article explores the spectacular prevalence, and failure, of the single most common technique for protecting personal autonomy in modern society: mandated disclosure. The article has four sections:(1) A comprehensive summary of the recurring use of mandated disclosures, in many forms and circumstances, in the areas of consumer and borrower protection, patient informed consent, contract formation, and constitutional rights;(2) A survey of the empirical literature documenting the failure of the mandated disclosure regime in informing people and in improving their decisions;(3) An account of the multitude of reasons mandated disclosures fail, focusing on the political dynamics underlying the enactments of these mandates, the incentives of disclosers to carry them out, and, most importantly, on the ability of disclosees to use them;(4) An argument that mandated disclosure not only fails to achieve its stated goal but also leads to unintended consequences that often harm the very people it intends to serve.

/pdf/the-failure-of-mandated-disclosure-1z5ys35ykc.pdf

The Failure of Mandated Disclosure

As the number of bank failures increases, the set of assets available for acquisition by the surviving banks enlarges but the total amount of available liquidity within the surviving banks falls. This results in 'cash-in-the-market' pricing for liquidation of banking assets. At a sufficiently large number of bank failures, and in turn, at a sufficiently low level of asset prices, there are too many banks to liquidate and inefficient users of assets who are liquidity-endowed may end up owning the liquidated assets. In order to avoid this allocation inefficiency, it may be ex-post optimal for the regulator to bail out some failed banks. We show however that there exists a policy that involves liquidity assistance to surviving banks in the purchase of failed banks and that is equivalent to the bailout policy from an ex-post standpoint. Crucially, the liquidity provision policy gives banks incentives to differentiate, rather than to herd, makes aggregate banking crises less likely, and, thereby dominates the bailout policy from an ex-ante standpoint.

Cash-in-The-Market Pricing and Optimal Resolution of Bank Failures

This paper assesses the costs and benefits - in theory and practice - of alternative methods of resolving banking crises. A number of ways are described in which intervention can maintain banking activities and avoid systemic risk whilst also limiting moral hazard and the fiscal costs of intervention. Although the authorities' options are more limited in systemic crises, the paper highlights certain good practices in these situations.

/pdf/resolution-of-banking-crises-theory-and-evidence-2qskw0awza.pdf

Resolution of Banking Crises: Theory and Evidence

Uses data from the Community Tracking Study to compare consumer responses on key attributes of their health plans with information provided directly by the plans, finding that consumers tend to overestimate plan restrictions, especially those on access to medical specialists.

Do Consumers Know How Their Health Plan Works

Late last year, the Bank of England’s Centre for Central Banking Studies hosted a research workshop for officials from a number of developed and emerging-market economies on banking crisis resolution. This article, which draws on the information provided in the workshop is based on a paper presented at its concluding conference. It describes some of the principles that authorities should and do consider when resolving banking crises, and possible resolution options. It also assesses the resolution practice in recent systemic banking crises.

/pdf/resolution-of-banking-crises-a-review-286yf2h5mt.pdf

Resolution of banking crises: a review

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Resolution of Banking Crises: Theory and Evidence

Do Consumers Know How Their Health Plan Works

Resolution of banking crises: a review