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Empirical analysis of moral hazard: a study of a vehicle insurance tax reform

This paper uses discrete choice and count data models to analyze the effects of a tax on vehicle insurance levied in Sweden in 2007. The analysis is based on a large set of micro-level panel data on individual insurance holders at the largest insurance company in Sweden for the period 2006-2010. Two questions are addressed: How did the tax reform influence the choice of insurance coverage, and how did changes in coverage affect the incidence of claims? The results show that, on average, the tax reform increased the odds of choosing lower insurance coverage by 47 percent, and that the tax reform had more impact on older drivers. However, switching to lower coverage due to the tax reform has not resulted in significant changes in claim distributions, though the incidence of claims decreased by 20 percent for switchers aged 35-44 in the pre-reform period, indicating a mitigation of ex ante moral hazard in vehicle insurance.

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File URL: http://www.transportportal.se/swopec/CTS2013-14.pdf
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Paper provided by CTS - Centre for Transport Studies Stockholm (KTH and VTI) in its series Working papers in Transport Economics with number 2013:14.

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Length: 46 pages
Date of creation: 19 Sep 2013
Date of revision:
Handle: RePEc:hhs:ctswps:2013_014
Contact details of provider: Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden
Web page: http://www.cts.kth.se/

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  1. Jaap H. Abbring & Pierre-André Chiappori & Jean Pinquet, 2003. "Moral Hazard and Dynamic Insurance Data," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 767-820, 06.
  2. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
  3. G. Dionne & R. Gagné, 2000. "Replacement Cost Endorsement and Opportunistic Fraud in Automobile Insurance," THEMA Working Papers 2000-06, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  4. Dionne, G. & Michaud, P.C. & Dahchour, M., 2004. "Separating Moral Hazard from Adverse Selection in Automobile Insurance : Longitudinal Evidence from France," Discussion Paper 2004-79, Tilburg University, Center for Economic Research.
  5. Kuniyoshi Saito, 2006. "Testing for Asymmetric Information in the Automobile Insurance Market Under Rate Regulation," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(2), pages 335-356.
  6. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  7. Chu-Shiu Li & Chwen-Chi Liu & Jia-Hsing Yeh, 2007. "The Incentive Effects of Increasing Per-Claim Deductible Contracts in Automobile Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(2), pages 441-459.
  8. Georges Dionne & Christian Gourieroux & Charles Vanasse, 1997. "The Informational Content of Household Decisions," Working Papers 97-01, Centre de Recherche en Economie et Statistique.
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