Journal of Risk and Uncertainty

, Volume 15, Issue 3, pp 201–219

Adverse Selection, Bequests, Crowding Out, and Private Demand for Insurance: Evidence from the Long-term Care Insurance Market


  • Frank A. Sloan
    • Duke University
  • Edward C. Norton
    • University of North Carolina

DOI: 10.1023/A:1007749008635

Cite this article as:
Sloan, F.A. & Norton, E.C. Journal of Risk and Uncertainty (1997) 15: 201. doi:10.1023/A:1007749008635


Adverse selection, moral hazard, and crowding out by public insurance have all been proposed as theoretical reasons for why the market for private long-term care insurance has been slow to evolve in the U.S. Using national samples of the elderly and near elderly, this study investigates which is most important. The data contain direct measures of risk aversion, expectations of future nursing home use and living to old age, and the bequest motive. For both groups, we find evidence of adverse selection, and, for the elderly, crowding out of private long-term care insurance by Medicaid. However, we do not find that demand for such insurance is motivated either by bequest or exchange motives.

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© Kluwer Academic Publishers 1997