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Contracting with Limited Commitment: Evidence from Employment-Based Health Insurance Contracts

Keith J. Crocker and John R. Moran
The RAND Journal of Economics
Vol. 34, No. 4 (Winter, 2003), pp. 694-718
Published by: Wiley on behalf of RAND Corporation
Stable URL: http://www.jstor.org/stable/1593784
Page Count: 25
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Contracting with Limited Commitment: Evidence from Employment-Based Health Insurance Contracts
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Abstract

Impediments to worker mobility serve to mitigate the attrition of healthy individuals from employer-sponsored insurance pools, thereby creating a de facto commitment mechanism that allows for more complete insurance of health risks than would be possible in the absence of such frictions. Using data on health insurance contracts obtained from the 1987 National Medical Expenditure Survey, we find that the quantity of insurance provided is positively related to the degree of worker commitment. These results illustrate the importance of commitment in the design of long-term contracts, and provide an additional rationale for the bundling of health insurance with employment.

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