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Testing for asymmetric information in insurance markets: A test for ex ante moral hazard revisited

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  • Rowell, David
  • Nghiem, Son Hong
  • Connelly, Luke B.

Abstract

The disentanglement of adverse selection from ex ante moral hazard remains an empirical challenge. Our comment dissects a natural experiment proposed by Chiappori and Salanié (2000) to test for ex ante moral hazard. Firstly, we argue that their test, as proposed, is too simple and too general to enable reliable inferences about the existence of ex ante moral hazard to be drawn and the reported negative coefficient does not rule out moral hazard. Secondly, their analysis strongly suggests that their proposed instrument (inherited bonus malus) is endogenously determined and therefore does not satisfy the technical requirements of a natural experiment.

Suggested Citation

  • Rowell, David & Nghiem, Son Hong & Connelly, Luke B., 2017. "Testing for asymmetric information in insurance markets: A test for ex ante moral hazard revisited," Economics Letters, Elsevier, vol. 150(C), pages 4-5.
    • Handle: RePEc:eee:ecolet:v:150:y:2017:i:c:p:4-5
    DOI: 10.1016/j.econlet.2016.10.044
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    References listed on IDEAS

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    1. 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.
    2. Georges Dionne (ed.), 2013. "Handbook of Insurance," Springer Books, Springer, edition 2, number 978-1-4614-0155-1, November.
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    More about this item

    Keywords

    Moral hazard; Natural experiment;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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