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Privacy, Driving Data and Automobile Insurance: An Economic Analysis

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Author Info

  • Aidan Hollis
  • Jason Strauss

Abstract

With new technologies that enable insurers to electronically monitor vehicles and drivers, insurers should be able to price automobile insurance more accurately, creating individualized prices for consumers. The welfare effects of lower prices are straightforward, but we also consider that consumers have heterogeneous valuations of privacy that they may lose if they adopt the monitoring technologies. We examine the voluntary market adoption of these monitoring technologies and its effect on equilibrium prices and welfare. We find a welfare effect equal to the loss in privacy, but conclude that the overall effect is ambiguous without considering moral hazard.

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Bibliographic Info

Paper provided by Department of Economics, University of Calgary in its series Working Papers with number 2008-13.

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Date of creation: 14 Feb 2008
Date of revision: 14 Feb 2008
Handle: RePEc:clg:wpaper:2008-13

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Related research

Keywords: Insurance markets; Asymmetric information; Privacy;

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  1. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
  2. George J. Stigler, 1980. "An Introduction to Privacy in Economics and Politics," University of Chicago - George G. Stigler Center for Study of Economy and State 10, Chicago - Center for Study of Economy and State.
  3. Hui, Kai-Lung & Png, Ivan P. L., 2005. "The Economics of Privacy," Working paper 272, Regulation2point0.
  4. repec:clg:wpaper:2007-18 is not listed on IDEAS
  5. Richard A. Posner, 1980. "The Economics of Privacy," University of Chicago - George G. Stigler Center for Study of Economy and State 16, Chicago - Center for Study of Economy and State.
  6. Crocker, Keith J & Snow, Arthur, 1986. "The Efficiency Effects of Categorical Discrimination in the Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 321-44, April.
  7. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  8. Lilia Filipova & Peter Welzel, 2005. "Reducing Asymmetric Information in Insurance Markets: Cars with Black Boxes," Discussion Paper Series 270, Universitaet Augsburg, Institute for Economics.
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