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Quantifying the Premium Externality of the Uninsured

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  • Stephen (Teng) Sun
  • Constantine Yannelis

Abstract

In insurance markets, the uninsured can generate a negative externality on the insured, leading insurance companies to charge higher premia. Using a novel panel data set and a staggered policy change that introduces exogenous variation in the rate of uninsured drivers at the county level in California, we find that uninsured drivers lead to higher insurance premia: a 1 percentage point increase in the rate of uninsured drivers raises premia by roughly 1%. We calculate the monetary fine on the uninsured that would fully internalize the externality and conclude that actual fines in most US states are inefficiently low.

Suggested Citation

  • Stephen (Teng) Sun & Constantine Yannelis, 2016. "Quantifying the Premium Externality of the Uninsured," Journal of the European Economic Association, European Economic Association, vol. 14(2), pages 405-437.
    • Handle: RePEc:oup:jeurec:v:14:y:2016:i:2:p:405-437.
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    File URL: http://hdl.handle.net/10.1111/jeea.12148
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    Cited by:

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    2. David Chivers & Zhigang Feng & Anne Villamil, 2017. "Employment-based Health Insurance and Misallocation: Implications for the Macroeconomy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 23, pages 125-149, January.

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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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