Adverse Selection and Moral Hazard in Social Insurance for Entrepreneurs

We estimate entrepreneurs' preferences for social insurance coverage and the extent of adverse selection and moral hazard in social insurance for entrepreneurs in Finland.  We show that when given a choice, entrepreneurs prefer a level of coverage that is on average 20% lower than what is mandated for wage earners.  To estimate the extent of moral hazard and adverse selection, we leverage a reform that allowed a subset of  entrepreneurs to freely choose their level of social insurance contributions and coverage. We find that both moral hazard and adverse selection are close to zero. These findings are supported by survey evidence showing that perceived health and knowledge about the benefits are not significantly associated with the actual social insurance coverage choices of entrepreneurs.