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

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Abstract

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.

Suggested Citation

  • Yarmukhamedov, Sherzod, 2013. "Empirical analysis of moral hazard: a study of a vehicle insurance tax reform," Working papers in Transport Economics 2013:14, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
  • Handle: RePEc:hhs:ctswps:2013_014
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    File URL: http://www.transportportal.se/swopec/CTS2013-14.pdf
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    References listed on IDEAS

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    1. Georges Dionne & Pierre-Carl Michaud & Maki Dahchour, 2004. "Separating Moral Hazard from Adverse Selection in Automobile Insurance: Longitudinal Evidence from France," Cahiers de recherche 0420, CIRPEE.
    2. 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.
    3. Dionne, Georges & Gagne, Robert, 2002. "Replacement Cost Endorsement and Opportunistic Fraud in Automobile Insurance," Journal of Risk and Uncertainty, Springer, vol. 24(3), pages 213-230, May.
    4. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    5. 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, June.
    6. 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, June.
    7. Georges Dionne & Christian Gourieroux & Charles Vanasse, 1997. "The Informational Content of Household Decisions," Working Papers 97-01, Center for Research in Economics and Statistics.
    8. 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.
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    More about this item

    Keywords

    Vehicle insurance; Moral hazard; Traffic safety; Tax reform;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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