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Moral Hazard and Dynamic Insurance Data

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Author Info
Jaap H. Abbring
Pierre-Andre Chiappori

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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

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File URL: http://home.uchicago.edu/~pchiappo/wp/japacjp.pdf
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Publisher Info
Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 316.

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Date of creation: 2004
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Handle: RePEc:red:sed004:316

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Related research
Keywords: Insurance moral hazard empirical test of contract theory

Other versions of this item:

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis

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  1. repec:hal:journl:hal-00243056_v1 is not listed on IDEAS
  2. Hanming Fang & Michael P. Keane & Dan Silverman, 2006. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," NBER Working Papers 12289, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Jaap Abbring & Gerard van den Berg, 2005. "Social experiments and instrumental variables with duration outcomes," IFS Working Papers W05/19, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  4. Georges Dionne & Benoit Dostie, 2007. "Estimating the Effect of a Change in Insurance Pricing Regime on Accidents with Endogenous Mobility," Cahiers de recherche 0728, CIRPEE. [Downloadable!]
    Other versions:
  5. Mette Ejrnæs & Gabriel Stefan Hochguertel, 2008. "Entrepreneurial Moral Hazard in Income Insurance: Empirical Evidence from a Large Administrative Sample," CAM Working Papers 2008-02, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics. [Downloadable!]
  6. Anja Deelen, 2005. "Adverse selection in disability insurance: empirical evidence for Dutch firms," CPB Discussion Papers 46, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  7. Luis Cabral & Ali Hortacsu, 2004. "The Dynamics of Seller Reputation: Theory and Evidence from eBay," NBER Working Papers 10363, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Jean Pinquet & Georges Dionne & Charles Vanasse & Mathieu Maurice, 2007. "Point-record incentives, asymmetric information and dynamic data," Working Papers hal-00243056_v1, HAL. [Downloadable!]
  9. Dionne, G. & Michaud, P.C. & Dahchour, M., 2004. "Separating moral hazard from adverse selection in automobile insurance : longitudinal evidence from France," Discussion Paper 79, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  10. Dubois, Pierre & Vukina, Tomislav, 2006. "Optimal Incentives under Moral Hazard and Heterogeneous Agents: Evidence from Production Contracts Data," CEPR Discussion Papers 6011, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Amy Finkelstein & James Poterba, 2006. "Testing for Adverse Selection with "Unused Observables"," NBER Working Papers 12112, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Grönqvist, Erik, 2006. "(M)oral Hazard?," Working Paper Series in Economics and Finance 642, Stockholm School of Economics. [Downloadable!]
  13. Mette Ejrnaes & Stefan Hochguertel, 2008. "Entrepreneurial Moral Hazard in Income Insurance," Tinbergen Institute Discussion Papers 08-065/3, Tinbergen Institute. [Downloadable!]
  14. Luis Cabral & Ali Hortacsu, 2006. "The Dynamics of Seller Reputation: Evidence from eBay," Working Papers 06-32, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  15. Sokbae 'Simon' Lee, 2003. "Estimating panel data duration models with censored data," CeMMAP working papers CWP13/03, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
  16. Liran Einav & Amy Finkelstein & Paul Schrimpf, 2007. "The Welfare Cost of Asymmetric Information: Evidence from the U.K. Annuity Market," NBER Working Papers 13228, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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