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Moral Hazard and Dynamic Insurance Data

Author

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  • Jaap H. Abbring
  • Pierre-Andre Chiappori

Abstract

This paper exhibits dynamic features of insurance contracts in the empirical analysis of moral hazard. We first show that experience rating implies negative occurrence dependence under moral hazard: individual claim intensities decrease with the number of past claims. We then show that dynamic insurance data allow to distinguish this moral-hazard effect from dynamic selection on unobservables. We develop nonparametric tests and estimate a flexible parametric model. We find no evidence of moral hazard in French car insurance. Our analysis contributes to a recent literature based on static data that has problems distinguishing between moral hazard and selection and dealing with dynamic features of actual insurance contracts. Methodologically, this paper builds on and extends the literature on state dependence and heterogeneity in event-history data. (JEL: D82, G22, C41, C14

Suggested Citation

  • Jaap H. Abbring & Pierre-Andre Chiappori, 2004. "Moral Hazard and Dynamic Insurance Data," 2004 Meeting Papers 316, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:316
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    Keywords

    Insurance; moral hazard; empirical test of contract theory;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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