Testing for Asymmetric Information in the Automobile Insurance Market Under Rate Regulation
This article examines whether adverse selection or moral hazard could be induced by rate regulation, which prohibits insurance companies from considering some attributes of drivers in setting premiums. Using an individual data set from a heavily regulated automobile insurance market, we arrived at several conclusions, as follows. First, no evidence of adverse selection or moral hazard is found in general: conditional on all the variables observed by insurer, the null hypothesis of independence between risk and coverage is not rejected at reasonable levels of statistical significance. Second, this result is robust in the sense that it holds under several empirical procedures and different definitions of risk and coverage. Third, we find that unobserved variables do not induce adverse selection: the null hypothesis that consumers in risky regions are more likely to purchase insurance is tested against the alternative and rejected. Our study supports the view that the adverse selection phenomenon exists only to a very limited extent in this market. Copyright The Journal of Risk and Insurance, 2006.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 73 (2006)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.wiley.com/bw/journal.asp?ref=0022-4367&site=1Email: |
More information through EDIRC
|Order Information:||Web: http://www.wiley.com/bw/subs.asp?ref=0022-4367|
When requesting a correction, please mention this item's handle: RePEc:bla:jrinsu:v:73:y:2006:i:2:p:335-356. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.