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

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Author Info

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

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 Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques. in its series Ecole des Hautes Etudes Commerciales de Montreal- with number 01-05.

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Length: 40 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:fth:etcori:01-05

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Postal: Canada; ECOLE DES HAUTES ETUDES COMMERCIALES(H.E.C.),3000, chemin de la Cote-Sainte-Catherine. Montreal (Quebec) Canada H3T 2A7.
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Web page: http://www.hec.ca/
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Keywords: AUTOMOBILES ; INSURANCE ; INSURANCE COMPANIES;

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References

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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.:
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  1. Dionne, G. & Gourieroux, C. & Vanasse, C., 1998. "Evidence of Adverse Selection in Automobile Insurance Markets," Ecole des Hautes Etudes Commerciales de Montreal- 98-09, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
  2. 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.
  3. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
  4. 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, vol. 109(2), pages 444-473, April.
  5. Chiappori, P.A. & Macho, I. & Rey, p. & Salanie, B., 1994. "Repeated Moral Hazard: The Role of Memory, Commitment, and the Acces to Credit Markets," Papers 06, Laval - Laboratoire Econometrie.
  6. Picard, Pierre, 1987. "On the design of incentive schemes under moral hazard and adverse selection," Journal of Public Economics, Elsevier, vol. 33(3), pages 305-331, August.
  7. J. Pinquet, 1997. "Experience rating through heterogeneous models," THEMA Working Papers 97-25, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  8. Pierre-André Chiappori & Bernard Salanié, 1997. "Testing for Asymmetric Information in Insurance Markets," Working Papers 97-11, Centre de Recherche en Economie et Statistique.
  9. 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.
  10. Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990. "Short-term contracts and long-term agency relationships," Journal of Economic Theory, Elsevier, vol. 51(1), pages 1-31, June.
  11. Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 56(5), pages 1177-90, September.
  12. 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.
  13. MALCOMSON, James M. & SPINNEWYN, Frans, . "The multiperiod principal-agent problem," CORE Discussion Papers RP -803, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  14. Gourieroux Christian & Monfort Alain & Trognon A, 1982. "Pseudo maximum lilelihood methods : applications to poisson models," CEPREMAP Working Papers (Couverture Orange) 8203, CEPREMAP.
  15. Rubinstein, Ariel & Yaari, Menahem E., 1983. "Repeated insurance contracts and moral hazard," Journal of Economic Theory, Elsevier, vol. 30(1), pages 74-97, June.
  16. 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, vol. 88(1), pages 44-62, February.
  17. Dionne, G & Vanasse, C, 1992. "Automobile Insurance Ratemaking in the Presence of Asymmetrical Information," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(2), pages 149-65, April-Jun.
  18. 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.
  19. Shavell, Steven, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 541-62, November.
  20. Allen, Franklin, 1985. "Repeated principal-agent relationships with lending and borrowing," Economics Letters, Elsevier, vol. 17(1-2), pages 27-31.
  21. 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., vol. 1(1), pages 29-53, January.
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Citations

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Cited by:
  1. Georges Dionne, 2012. "The Empirical Measure of Information Problems with Emphasis on Insurance Fraud and Dynamic Data," Cahiers de recherche 1233, CIRPEE.
  2. Desjardins, D. & Dionne, G. & Pinquet, J., 2000. "Experience Rating Schemes for Fleets of Vehicules," Ecole des Hautes Etudes Commerciales de Montreal- 00-03, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
  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 1204, CIRPEE.
  4. Lilia Filipova, 2007. "Monitoring and Privacy in Automobile Insurance Markets with Moral Hazard," Discussion Paper Series 293, Universitaet Augsburg, Institute for Economics.
  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. Jean Pinquet & Georges Dionne & Charles Vanasse & Mathieu Maurice, 2007. "Point-record incentives, asymmetric information and dynamic data," Working Papers hal-00243056, HAL.
  7. Pinquet, J., 1998. "Designing Optimal Bonus-Malus Systems from Different Types of Claims," Papers 9819, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
  8. Alma Cohen & Peter Siegelman, 2009. "Testing for Adverse Selection in Insurance Markets," NBER Working Papers 15586, National Bureau of Economic Research, Inc.
  9. Georges Dionne & Olfa Ghali, 2003. "The (1992) Bonus-Malus System in Tunisia: An Empirical Evaluation," THEMA Working Papers 2003-40, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

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