Abstract: This paper measures welfare losses caused by adverse selection and imperfect competition in Privatized Medicare. I model insurers' premium and coverage choices in an environment where consumers with heterogeneous preferences may impose different costs on their insurers. Using insurers' behavior and variation in market structure, I identify a causal link between consumers' types and insurers' costs and infer whether preferences, which determine insurance demand, contain information about expected health. The results suggest adverse selection is present. Simulated equilibria without adverse selection imply the resulting welfare losses are substantial, 8.1% of total costs, but smaller than those caused by imperfect competition.
Abstract: This paper uncovers new evidence of peer effects in welfare participation. I collect data on welfare participation decisions among related single mothers who reside in different states. To identify peer effects, I regress the welfare decision of a single mother living in state X on the decision of her relative living in state Y. I use welfare eligibility policies in state Y as instruments in this regression. This strategy is motivated by the observation that welfare participation is strongly correlated with welfare policies at the state level, and these policies vary extensively across states and time. I find peer effects that are weaker between cousins than between sisters, and are weaker in large families. Peer effects operate most strongly on single mothers with a high school degree, but no college education. This suggests peer effects are most important for single mothers on the margin between welfare participation and employment.