Adverse Selection in Low-Income Health Insurance Markets: Evidence from a large-scale RCT in Pakistan


vicolo dalla Piccola 12

Around the world, there is a growing interest to provide insurance policies to low-income households. Selection of high-risk individuals into the insurance pool is an often cited impediment for the sustainability of such schemes, though. We provide robust evidence on the presence of adverse selection from a large randomized control trial on health insurance in rural Pakistan. Our experimental setup allows us to separate adverse selection from moral hazard, to estimate how selection changes at different points of the demand curve and to test measures against adverse selection. The results suggest that there is substantial adverse selection if health insurance coverage can be individually assigned. In particular, adverse selection tends to become worse with higher premium prices, creating a trade-off between cost recovery and the quality of the insurance pool. In contrast, adverse selection is mitigated when bundling insurance policies at the household or higher levels. Further analyses suggest that adverse selection in individual products has non-negligible welfare consequences and that these are less pronounced in relative terms when bundling policies.


  • Markus Frölich - Guest Speaker
    University of Mannheim and Center for Evaluation & Development
    Prof. Dr. Markus Frölich is full professor of Econometrics (Chair of Econometrics) at the University of Mannheim in Germany and Director of the Center for Evaluation and Development C4ED ( He is also a J-PAL Affiliate as well as a permanent guest professor at the University of St. Gallen in Switzerland. He obtained his Ph.D. in economics in 2002 from the University of St. Gallen, after which he was granted a Marie Curie Individual Fellowship at the University College London. From 2008 to 2011, he was director of the research program “Employment and Development” at the World Bank and the Institute for the Study of Labor. He is further affiliated with the Swiss Institute for Empirical Economic Research (SEW, St. Gallen), the Institute for Labour Market Policy Evaluation (IFAU, Uppsala), the Centre for European Economic Research (ZEW, Mannheim), the Institute for the Study of Labor (IZA, Bonn) and the Institute for Social and Economic Research (ISER, Essex). His main research fields encompass impact evaluation methodology, policy evaluation, labor economics, micro-econometrics, nonparametric and quantitative research methods. He pioneered the development of quantile treatment effects and distributional effects in heterogeneity models. He developed a new framework for mediation analysis and causal pathways, for profiling and targeting of interventions, as well as new methods for dealing with non-response and survey attrition with big data sets. He conducted a large number of impact evaluations of labor market and educational policies. His research has been widely published with more than 40 publications in leading statistics and econometrics journals, including new econometric methods for propensity score matching, difference-in-differences matching estimators, regression discontinuity estimators, panel data models, nonparametric smoothing and bandwidth choice. He currently serves as an associate editor of the Journal of Business and Economic Statistics, IZA World of Labor and the IZA Journal of Labor & Development. Professor Frölich led impact evaluation projects for the World Bank, UNICEF, the United Nations World Food Programme (UN-WFP), for the International Labour Organization (ILO), the International Fund for Agricultural Development (IFAD), the International Initiative for Impact Evaluation (3ie), the German Agency for International Cooperation (GIZ), KfW Development Bank, as well as numerous impact evaluations with national partners.

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