Asymmetric Information and Countermeasures in Early Twentieth-Century American Short-Term Disability Microinsurance

American workers and employers a century ago formed microinsurance funds to provide sick pay to temporarily disabled workers. This article analyzes a 1908 survey of several hundred such microinsurers. Theoretically, a single cross-section may yield evidence of asymmetric information, but cannot enable the separation of moral hazard and adverse selection effects. However, microinsurance fund managers and outside observers believed they did see separate such effects and so microinsurers created separate countermeasures to mitigate these problems. This article finds prima facie evidence of asymmetric information and suggestive evidence of the separability of informational asymmetries and the effectiveness of such countermeasures.