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The Role of Memory in Long-Term Contracting with Moral Hazard : Empirical Evidence in Automobile Insurance

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  • G. Dionne
  • M. Maurice
  • J. Pinquet
  • C. Vanasse

Abstract

This paper tests the efficiency associated with the role of memory in long-term contracting. Bonus-malus schemes in automobile insurance are examples of contracts that use memory. During the eighties different contributors (Lambert, 1983, Rogerson, 1985, Boyer, and Dionne, 1989) showed how multi-period contracting under moral hazard improves resource allocation. In particular, it was demonstrated that multi-period contracts with memory outperform those without memory under full commitment.

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Bibliographic Info

Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2001-11.

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Date of creation: 2001
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Handle: RePEc:ema:worpap:2001-11

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References

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  1. Boyer, Marcel & Dionne, Georges, 1989. "An Empirical Analysis of Moral Hazard and Experience Rating," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 128-34, February.
  2. Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990. "Short-term contracts and long-term agency relationships," Journal of Economic Theory, Elsevier, Elsevier, vol. 51(1), pages 1-31, June.
  3. Cameron, A Colin & Trivedi, Pravin K, 1986. "Econometric Models Based on Count Data: Comparisons and Applications of Some Estimators and Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 1(1), pages 29-53, January.
  4. J. Pinquet & M. Guillén & C. Bolancé, 2000. "Long-range contagion in automobile insurance data : estimation and implications for experience rating," THEMA Working Papers 2000-43, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  5. Crocker, Keith J & Snow, Arthur, 1986. "The Efficiency Effects of Categorical Discrimination in the Insurance Industry," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(2), pages 321-44, April.
  6. Rubinstein, Ariel & Yaari, Menahem E., 1983. "Repeated insurance contracts and moral hazard," Journal of Economic Theory, Elsevier, Elsevier, vol. 30(1), pages 74-97, June.
  7. G. Dionne & N. Doherty & N. Fombaron, 2000. "Adverse Selection in Insurance Markets," THEMA Working Papers 2000-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  8. Malcomson, James M & Spinnewyn, Frans, 1988. "The Multiperiod Principal-Agent Problem," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(3), pages 391-407, July.
  9. J. Pinquet, 1997. "Experience rating through heterogeneous models," THEMA Working Papers 97-25, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  10. Gourieroux Christian & Monfort Alain & Trognon A, 1982. "Pseudo maximum lilelihood methods : applications to poisson models," CEPREMAP Working Papers (Couverture Orange) 8203, CEPREMAP.
  11. Dionne, G. & Gourieroux, C. & Vanasse, C., 1998. "Evidence of Adverse Selection in Automobile Insurance Markets," Papers, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor. 9822, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
  12. Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, Econometric Society, vol. 56(5), pages 1177-90, September.
  13. Shavell, Steven, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(4), pages 541-62, November.
  14. Chiappori, Pierre-Andre & Macho, Ines & Rey, Patrick & Salanie, Bernard, 1994. "Repeated moral hazard: The role of memory, commitment, and the access to credit markets," European Economic Review, Elsevier, Elsevier, vol. 38(8), pages 1527-1553, October.
  15. Dionne, G. & Vanasse, C., 1988. "Automobile Insurance Ratemaking in the Presence of Asymmetric Information," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 8834, Universite de Montreal, Departement de sciences economiques.
  16. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, Econometric Society, vol. 53(1), pages 69-76, January.
  17. Georges Dionne & Christian Gourieroux & Charles Vanasse, 2001. "Testing for Evidence of Adverse Selection in the Automobile Insurance Market: A Comment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 109(2), pages 444-473, April.
  18. Allen, Franklin, 1985. "Repeated principal-agent relationships with lending and borrowing," Economics Letters, Elsevier, Elsevier, vol. 17(1-2), pages 27-31.
  19. Pierre-Andre Chiappori & Bernard Salanie, 2000. "Testing for Asymmetric Information in Insurance Markets," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(1), pages 56-78, February.
  20. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(1), pages 44-62, February.
  21. Picard Pierre, 1986. "On the design of incentive schemes under moral hazard and adverse selection," CEPREMAP Working Papers (Couverture Orange) 8602, CEPREMAP.
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Citations

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Cited by:
  1. J. Pinquet, 1998. "Designing optimal bonus-malus systems from different types of claims," THEMA Working Papers 98-19, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  2. D. Desjardins & G. Dionne & J. Pinquet, 2000. "Experience rating schemes for fleets of vehicles," THEMA Working Papers 2000-08, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  3. Georges Dionnne & Pierre-Carl Michaud & Jean Pinquet, 2012. "A Review of Recent Theoretical and Empirical Analyses of Asymmetric Information in Road Safety and Automobile Insurance," Cahiers de recherche, CIRPEE 1204, CIRPEE.
  4. Georges Dionne, 2012. "The Empirical Measure of Information Problems with Emphasis on Insurance Fraud and Dynamic Data," Cahiers de recherche, CIRPEE 1233, CIRPEE.
  5. G. Dionne, 2001. "Commitment and Automobile Insurance in France, Quebec and Japan," THEMA Working Papers 2001-10, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  6. Georges Dionne & Olfa Ghali, 2005. "The (1992) Bonus-Malus System in Tunisia: An Empirical Evaluation," Journal of Risk & Insurance, The American Risk and Insurance Association, The American Risk and Insurance Association, vol. 72(4), pages 609-633.
  7. Alma Cohen & Peter Siegelman, 2010. "Testing for Adverse Selection in Insurance Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, The American Risk and Insurance Association, vol. 77(1), pages 39-84.
  8. Jean Pinquet & Georges Dionne & Charles Vanasse & Mathieu Maurice, 2007. "Point-record incentives, asymmetric information and dynamic data," Working Papers, HAL hal-00243056, HAL.
  9. Lilia Filipova, 2007. "Monitoring and Privacy in Automobile Insurance Markets with Moral Hazard," Discussion Paper Series, Universitaet Augsburg, Institute for Economics 293, Universitaet Augsburg, Institute for Economics.

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