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Collusion in Vertical Relationships: The Case of Insurance Fraud in Taiwan

Author

Listed:
  • Pierre Picard

    (X - École polytechnique)

  • Kili C Wang

    (TKU - Tamkang University [New Taipei])

Abstract

The delegation of services from producers to retailers is frequently at the origin of transaction costs, associated with the discretion in the way retailers do their job. This is particularly the case when retailers and customers collude to exploit loopholes in the contracts between producers and customers. In this paper, we analyze how insurance distribution channels may affect such misbehaviors, when car repairers are joining policy holders to defraud insurers. We focus attention on the Taiwan automobile insurance market by using a database provided by the largest Taiwanese automobile insurer. The theoretical underpinning of our analysisis provided by a model of claims fraud with collusion and audit. Our econometric analysis con firms that fraud occurs through the postponing of claims to the end of the policy year, possibly by filing on single claim for several events. It highlights the role of car dealer owned insurance agents in the collusive fraud mechanism.

Suggested Citation

  • Pierre Picard & Kili C Wang, 2016. "Collusion in Vertical Relationships: The Case of Insurance Fraud in Taiwan," Working Papers hal-01385502, HAL.
    • Handle: RePEc:hal:wpaper:hal-01385502
    Note: View the original document on HAL open archive server: https://polytechnique.hal.science/hal-01385502v2
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    References listed on IDEAS

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    1. M. Martin Boyer, 2004. "Overcompensation as a Partial Solution to Commitment and Renegotiation Problems: The Case of Ex Post Moral Hazard," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(4), pages 559-582, December.
    2. Chu‐Shiu Li & Chwen‐Chi Liu & Jia‐Hsing Yeh, 2007. "The Incentive Effects of Increasing Per‐Claim Deductible Contracts in Automobile Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(2), pages 441-459, June.
    3. Pierre-Andre Chiappori & Bernard Salanie, 2000. "Testing for Asymmetric Information in Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 56-78, February.
    4. Georges Dionne (ed.), 2013. "Handbook of Insurance," Springer Books, Springer, edition 2, number 978-1-4614-0155-1, December.
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    Keywords

    Insurance; Fraud; Audit; Insurance distribution;
    All these keywords.

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