Final answer:
The statement is true. Cawley and Philipson's findings support the Rothschild-Stiglitz model, showing that people buying larger policies pay lower per unit prices due to bulk markups and economies of scale.
Step-by-step explanation:
The statement provided is True. Cawley and Philipson's (1999) findings that people buying larger policies pay lower per unit prices provide evidence of bulk markups, which aligns with the Rothschild-Stiglitz model. According to the Rothschild-Stiglitz model, bulk markups occur when larger quantities of a product are sold at a lower per unit price. This can be explained by economies of scale, where the cost of production decreases as the quantity produced increases, allowing for lower prices.
The statement regarding Cawley and Philipson's findings on insurance pricing and bulk markups aligning with the Rothschild-Stiglitz model is true. It illustrates economies of scale, where insurers' average costs decrease with larger policies, leading to lower unit prices.
The statement Cawley and Philipson (1999) find that people buying larger policies pay lower per unit prices is True. This is evidence of bulk markups, which aligns with the predictions of the Rothschild-Stiglitz model. The model suggests that insurance companies may charge less per unit of coverage for larger policies due to economies of scale. These economies occur when a firm's average costs decrease as the scale of operation increases, as noted in theories of firm behavior. When insurers sell larger policies, the administrative cost per unit of insurance can decrease, thus allowing them to offer lower prices. This also corresponds to the broader concept within economics that large-scale production can significantly reduce average costs.