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Does Social Capital reduce moral hazard? A network model for non-life insurance demand

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  • Giacomo Pasini

    ()
    (Department of Economics, University Of Venice Cà Foscari, Economics and Organization, School for Advanced Studies in Venice)

  • Giovanni Millo

    (Research Department, Generali S.p.A.)

Abstract

We study is the effect of moral hazard involved in non market contracts on the demand for marketed contracts. We extend Arnott and Stiglitz model on the coexistence of market and non-market insurance contracts to allow for the presence of Social Capital as a determinant of the severity of moral hazard in informal contracts. We provide a rigorous definition of Social Network and Social Capital by means of an equilibrium concept typical of the Network literature. Such a formal approach gives us a clear guidance for measuring Social Capital and validate the model on empirical data. The model is estimated on a panel dataset, supporting our claim that Social Capital increases the demand for non-life insurance. We test for the presence of spatial correlation, and conclude that the spatial structure of demand for non-life insurance contracts is completely determined by the spatial distribution of Social Capital.

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Bibliographic Info

Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2006_59.

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Length: 33
Date of creation: 2006
Date of revision:
Handle: RePEc:ven:wpaper:2006_59

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Related research

Keywords: Insurance; Social Capital; Network stability; Spatial Panel data model;

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Cited by:
  1. Nordström Skans, Oskar & Kramarz, Francis, 2011. "When strong ties are strong – networks and youth labor market entry," Working Paper Series 2011:18, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  2. Millo, Giovanni, 2014. "Maximum likelihood estimation of spatially and serially correlated panels with random effects," Computational Statistics & Data Analysis, Elsevier, vol. 71(C), pages 914-933.
  3. Paolo Buonanno & Giacomo Pasini & Paolo Vanin, 2012. "Crime and social sanction," Papers in Regional Science, Wiley Blackwell, vol. 91(1), pages 193-218, 03.

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