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Privacy, Driving Data and Automobile Insurance: An Economic Analysis

Author

Listed:
  • Hollis, Aidan
  • Strauss, Jason

Abstract

With new technologies that enable insurers to electronically monitor vehicles and drivers, insurers should be able to price automobile insurance more accurately, creating individualized prices for consumers. The welfare effects of lower prices are straightforward, but we also consider that consumers have heterogeneous valuations of privacy that they may lose if they adopt the monitoring technologies. We examine the voluntary market adoption of these monitoring technologies and its effect on equilibrium prices and welfare. We find a welfare effect equal to the loss in privacy, but conclude that the overall effect is ambiguous without considering moral hazard.

Suggested Citation

  • Hollis, Aidan & Strauss, Jason, 2007. "Privacy, Driving Data and Automobile Insurance: An Economic Analysis," MPRA Paper 11091, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:11091
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    File URL: https://mpra.ub.uni-muenchen.de/11091/1/MPRA_paper_11091.pdf
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    References listed on IDEAS

    as
    1. Lilia Filipova & Peter Welzel, 2005. "Reducing Asymmetric Information in Insurance Markets: Cars with Black Boxes," Discussion Paper Series 270, Universitaet Augsburg, Institute for Economics.
    2. 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.
    3. repec:clg:wpaper:2007-18 is not listed on IDEAS
    4. George J. Stigler, 1980. "An Introduction to Privacy in Economics and Politics," University of Chicago - George G. Stigler Center for Study of Economy and State 10, Chicago - Center for Study of Economy and State.
    5. Richard A. Posner, 1980. "The Economics of Privacy," University of Chicago - George G. Stigler Center for Study of Economy and State 16, Chicago - Center for Study of Economy and State.
    6. Kai-Lung Hui & I.P.L. Png, 2005. "The Economics of Privacy," Industrial Organization 0505007, EconWPA, revised 29 Aug 2005.
    7. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Gemmo, Irina & Browne, Mark J. & Gr√ľndl, Helmut, 2017. "Transparency aversion and insurance market equilibria," ICIR Working Paper Series 25/17, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).

    More about this item

    Keywords

    Insurance; Privacy;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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