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Why Is Automobile Insurance in Philadelphia So Damn Expensive?

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Author Info
Smith, Eric
Wright, Randall

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Abstract

The authors document and attempt to explain the observation that automobile insurance premiums vary dramatically across cities. The authors argue that high premiums can be attributed, at least in part, to large numbers of uninsured motorists in some markets, while uninsured motorists can be attributed to high premiums. The authors construct a simple noncooperative equilibrium model that can generate inefficient equilibria with uninsured drivers and high, yet actuarially fair, premiums. For certain parameterizations, an efficient full-insurance equilibrium and inefficient high-price equilibria with uninsured drivers exist simultaneously, helping to explain price variability across otherwise similar cities. Policy implications are discussed. Copyright 1992 by American Economic Association.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 82 (1992)
Issue (Month): 4 (September)
Pages: 756-72
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Handle: RePEc:aea:aecrev:v:82:y:1992:i:4:p:756-72

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  1. Smith, E. & Wright, R., 1990. "Why Is Automobile Insurance In Philadelphia So Damn Expensive?," Papers e-90-4, Stanford - Hoover Institution.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Zenou, Yves, 2007. "Why do Black Workers Search Less? A Transport-Mode Based Theory," CEPR Discussion Papers 6155, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. M. Martin Boyer & Jörg Schiller, 2003. "Merging Automobile Insurance Regulatory Bodies: The Case of Atlantic Canada," CIRANO Working Papers 2003s-70, CIRANO. [Downloadable!]
  3. Eric Smith & Randall Wright, 1991. "Why is automobile insurance in Philadelphia so damn expensive?," Staff Report 139, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  4. Carlsson, Fredrik & Daruvala, Dinky & Johansson-Stenman, Olof, 2001. "Are People Inequality Averse Or Just Risk Averse?," Working Papers in Economics 43, Göteborg University, Department of Economics. [Downloadable!]
    Other versions:
  5. Stefan Josten, 2003. "Inequality, Crime and Economic Growth. A Classical Argument for Distributional Equality," Asia-Pacific Financial Markets, Springer, vol. 10(4), pages 435-452, August. [Downloadable!] (restricted)
  6. Helge Braun & Winfried Koeniger, 2007. "On the role of market insurance in a dynamic model," The Geneva Papers on Risk and Insurance Theory, Springer, vol. 32(1), pages 61-90, June. [Downloadable!] (restricted)
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  7. repec:bep:eaptop:v:6:y:2006:i:1:p:1055-1055 is not listed on IDEAS
  8. Khazzoom, J. Daniel, 1999. "Pay-at-the-Pump Auto Insurance," Discussion Papers dp-98-13-rev, Resources For the Future. [Downloadable!]
  9. Scott Freeman, 1991. "Underdevelopment and the enforcement of laws and contracts," Research Paper 9110, Federal Reserve Bank of Dallas. [Downloadable!]
  10. Ming Chang & Chiu Lin & Dachrahn Wu, 2008. "Piracy and limited liability," Journal of Economics, Springer, vol. 95(1), pages 25-53, October. [Downloadable!] (restricted)
  11. Dwight Jaffee & Thomas Russell, 1995. "The Causes and Consequences of Rate Regulation in the Auto Insurance Industry," NBER Working Papers 5245, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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