Reducing Asymmetric Information in Insurance Markets: Cars with Black Boxes
AbstractWe examine the effects of ex post revelation of information about the risk type or the risk-reducing behavior of insureds in automobile insurance markets both for perfect competition and for monopoly. Specifically, we assume that insurers can offer a contract with information revelation ex post, i.e., after an accident has occurred, in addition to the usual second-best contracts. Under moral hazard this always leads to a Pareto-improvement of social welfare. For adverse selection we find that this is also true except when bad risks under self-selecting contracts received an information rent, i.e., under monopoly or under competition with cross-subsidization from low to high risks. Regulation can be used to establish Pareto-improvement also in these cases. Privacy concerns do not alter our positive welfare results.
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Bibliographic InfoPaper provided by Universitaet Augsburg, Institute for Economics in its series Discussion Paper Series with number 270.
Date of creation: Feb 2005
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information moral hazard; adverse selection; insurance;
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; Actuarial Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-03-06 (All new papers)
- NEP-COM-2005-03-06 (Industrial Competition)
- NEP-FIN-2005-03-06 (Finance)
- NEP-IND-2005-03-06 (Industrial Organization)
- NEP-MIC-2005-03-06 (Microeconomics)
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- Aidan Hollis & Jason Strauss, 2008.
"Privacy, Driving Data and Automobile Insurance: An Economic Analysis,"
2008-13, Department of Economics, University of Calgary, revised 14 Feb 2008.
- Hollis, Aidan & Strauss, Jason, 2007. "Privacy, Driving Data and Automobile Insurance: An Economic Analysis," MPRA Paper 11091, University Library of Munich, Germany.
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