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Testing for Adverse Selection in China's Auto Insurance Market

Author

Listed:
  • Gao Feng

    (Tsinghua University)

  • Wang Jun

    (Tsinghua University)

Abstract

This paper empirically examines the adverse selection models by using the data from China's personal automobile insurance market through the standard positive-correlation test. Results show that higher-risk insurance policyholders do tend to buy insurance with a lower coinsurance rate, which supports the existence of adverse selection in China's automobile insurance market. This is quite a contrast to the findings in mature insurance markets.

Suggested Citation

  • Gao Feng & Wang Jun, 2011. "Testing for Adverse Selection in China's Auto Insurance Market," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 5(1), pages 1-16, March.
    • Handle: RePEc:bpj:apjrin:v:5:y:2011:i:1:n:5
    DOI: 10.2202/2153-3792.1082
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    References listed on IDEAS

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    1. Puelz, Robert & Snow, Arthur, 1994. "Evidence on Adverse Selection: Equilibrium Signaling and Cross-Subsidization in the Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 236-257, April.
    2. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 629-649.
    3. 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 321-344, April.
    4. 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.
    5. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
    6. Dahlby, B. G., 1983. "Adverse selection and statistical discrimination : An analysis of Canadian automobile insurance," Journal of Public Economics, Elsevier, vol. 20(1), pages 121-130, February.
    7. 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.
    8. Gao, Feng & Powers, Michael R. & Wang, Jun, 2009. "Adverse selection or advantageous selection? Risk and underwriting in China's health-insurance market," Insurance: Mathematics and Economics, Elsevier, vol. 44(3), pages 505-510, June.
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    Cited by:

    1. Feng Gao & Michael R. Powers & Jun Wang, 2017. "Decomposing Asymmetric Information in China's Automobile Insurance Market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(4), pages 1269-1293, December.

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