Adverse Selection and Moral Hazard In Insurance: Can Dynamic Data Help to Distinguish?
AbstractA standard problem of applied contracts theory is to empirically distinguish between adverse selection and moral hazard. We show that dynamic insurance data allow to distinguish moral hazard from dynamic selection on unobservables. In the presence of moral hazard, experience rating implies negative occurrence dependence: individual claim intensities decrease with the number of past claims. We discuss econometric tests for the various types of data that are typically available. Finally, we argue that dynamic data also allow to test for adverse selection, even if it is based on asymmetric learning. (JEL: D82, G22, C41, C14) Copyright (c) 2003 The European Economic Association.
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Bibliographic InfoArticle provided by MIT Press in its journal Journal of the European Economic Association.
Volume (Year): 1 (2003)
Issue (Month): 2-3 (04/05)
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Web page: http://www.mitpressjournals.org/jeea
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
- C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
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