Life Insurance and Suicide: Asymmetric Information Revisited

Abstract

This paper investigates the nexus between life insurance and suicide behavior by applying semiparametric instrumental variable regressions to OECD cross-country data from 1980 to 2002. The novelty of our analysis lies in the use of cross-country variations in the lengths of the suicide exemption period in policies and foreign market shares in life insurance industries as identifying instruments for life insurance demand. We find that, for the majority of observations, there exists a positive causality from life insurance demand to suicide. This result suggests the existence of adverse selection and moral hazards in life insurance markets in OECD countries.