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The Real Effects of the Uninsured on Premia

  • Yannelis, Constantine
  • Sun, Stephen Teng

In some insurance markets, the uninsured can generate a negative externality on the insured, leading insurance companies to pass on costs as higher premia. Using a novel panel data set and a staggered policy change that exogenously varied the rate of uninsured drivers at the county level in California, we quantitatively investigate the effect of uninsured motorists on automobile insurance premia. Consistent with predictions of theory, we find uninsured drivers lead to higher insurance premia. Specifically, a 1 percentage point increase in the rate of uninsured drivers raises insurance premia by between 1-2%. We also discuss corrective Pigouvian taxes.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48264.

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Date of creation: 20 May 2013
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Handle: RePEc:pra:mprapa:48264
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