Hostname: page-component-848d4c4894-2xdlg Total loading time: 0 Render date: 2024-06-23T03:00:37.808Z Has data issue: false hasContentIssue false
  • English
  • Français

THE IMPORTANCE OF THE CHOICE OF TEST FOR FINDING EVIDENCE OF ASYMMETRIC INFORMATION

Published online by Cambridge University Press:  15 January 2014

Catherine Donnelly ,
Martin Englund  and
Jens Perch Nielsen
Catherine Donnelly*
Affiliation:
Department of Actuarial Mathematics and Statistics, and the Maxwell Institute for Mathematical Sciences, Heriot-Watt University, Edinburgh EH14 4AS, UK
Martin Englund
Affiliation:
Department of Economics and Business, Aarhus University, Denmark, and Codan Insurance, part of the RSA Group, Denmark E-mail: eld@codan.dk
Jens Perch Nielsen
Affiliation:
Cass Business School, City University London, 106 Bunhill Row, London EC1Y 8TZ, UK E-mail: Jens.Nielsen.1@city.ac.uk
*
E-mail: C.Donnelly@hw.ac.uk
Get access Rights & Permissions [Opens in a new window]

Abstract

We put one of the predictions of adverse-selection models to the test, using data from the Danish automobile insurance market: that there is a positive correlation between claims risk and insurance coverage. We can find a statistically significant insurance coverage--risk correlation when coverage is expressed relative to the insurance premium, but not when it is expressed in monetary terms.

Keywords

Adverse selectionmoral hazardautomobile insurancelearningbivariate probit
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 44 , Issue 2 , May 2014 , pp. 173 - 195
Copyright
Copyright © ASTIN Bulletin 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Abbring, J.H., Chiappori, P.-A., Heckman, J.J. and Pinquet, J. (2003a) Adverse selection and moral hazard in insurance: Can dynamic data help to distinguish? Journal of the European Economic Association, 1, 512–521.CrossRefGoogle Scholar
Abbring, J.H., Chiappori, P.-A. and Pinquet, J. (2003b) Moral hazard and dynamic insurance data. Journal of the European Economic Association, 1 (4), 767–820.CrossRefGoogle Scholar
Abbring, J.H., Chiappori, P.-A. and Zavadil, T. (2008) Better safe than sorry? Ex ante and ex post moral hazard in dynamic insurance data. Discussion Paper 2008-77, CentER, Tilburg. URL: http://jaap.abbring.org/images/pdf/xaxp.pdf.CrossRefGoogle Scholar
Angers, J., Desjardins, D., Dionne, G. and Guertin, F. (2006) Vehicle and fleet random effects in a model of insurance rating for fleets of vehicles. ASTIN Bulletin, 36 (1), 25–77.CrossRefGoogle Scholar
Austin, L.C. and Fischhoff, B. (2010) Consumers' collision insurance decisions: A mental models approach to theory evaluation. Journal of Risk Research, 13 (7), 895–911.CrossRefGoogle Scholar
Bühlmann, H. and Gisler, A. (2005) A Course in Credibility Theory and Its Applications. Berlin: Springer.Google Scholar
Casella, G. and Berger, R.L. (2002) Statistical Inference, 2nd edn. Pacific Grove, CA: Duxbury.Google Scholar
Chassagnon, A. and Chiappori, P.-A. (1997) Insurance under moral hazard and adverse selection: The case of pure competition. URL: http://www.pse.ens.fr/chassagnon/acpac95.pdf.Google Scholar
Chiappori, P.-A. (2000) Econometric models of insurance under asymmetric information. In Handbook of Insurance (ed. Dionne, G.), pp. 365–394. Boston, MA: Kluwer.CrossRefGoogle Scholar
Chiappori, P.-A. and Salanié, B. (2000) Testing for asymmetric information in insurance markets. Journal of Political Economy, 108 (1), 56–78.CrossRefGoogle Scholar
Chiappori, P.-A. and Salanié, B. (2013) Asymmetric information in insurance markets: Predictions and tests. In Handbook of Insurance, 2nd edn (ed. Dionne, G.), pp. 397–422. New York: Springer.CrossRefGoogle Scholar
Chiappori, P.-A., Salanié, B., Salanié, B. and Salanié, F. (2006) Asymmetric information in insurance: General testable implications. RAND Journal of Economics, 37 (4), 783–798.CrossRefGoogle Scholar
Cohen, A. (2005) Asymmetric information and learning: Evidence from the automobile insurance market. Review of Economics and Statistics, 87 (2), 197–207.CrossRefGoogle Scholar
Cohen, A. and Einav, L. (2003) The effects of mandatory seat belt laws on driving behavior and traffic fatalities. Review of Economics and Statistics, 85 (4), 828–843.CrossRefGoogle Scholar
Cutler, D. (2002) Health care and the public sector. In Handbook of Public Economics (eds. Auerbach, A. and Feldstein, M.), pp. 2143–2243. Amsterdam: North-Holland.Google Scholar
Dahlby, B.G. (1983) Adverse selection and statistical discrimination: An analysis of Canadian automobile insurance. Journal of Public Economics, 20, 207–219.CrossRefGoogle Scholar
Dahlby, B.G. (1992) Testing for asymmetric information in Canadian automobile insurance. In Contributions to Insurance Economics (ed. Dionne, G.), pp. 423–443. Boston: Kluwer Academic.CrossRefGoogle Scholar
De Garidel-Thoron, T. (2000) Welfare-improving asymmetric information in dynamic insurance markets. Journal of Political Economy, 113 (1), 121–151.CrossRefGoogle Scholar
de Meza, D. and Webb, D.C. (2001) Advantageous selection in insurance markets. RAND Journal of Economics, 32 (2), 249–262.CrossRefGoogle Scholar
Dionne, G., Gouriéroux, C. and Vanasse, C. (2001) Testing for adverse selection in the automobile insurance market: A comment. Journal of Political Economy, 109, 444–453.CrossRefGoogle Scholar
Dionne, G., Pinquet, J., Maurice, M. and Vanasse, C. (2011) Incentive mechanisms for safe driving: A comparative analysis with dynamic data. Review of Economics and Statistics, 93, 218–227.CrossRefGoogle Scholar
Dionne, G., Michaud, P.-C. and Dahchour, M. (2013) Separating moral hazard from adverse selection and learning in automobile insurance: Longitudinal evidence from France. Journal of the European Economic Association, 11, 897–917.CrossRefGoogle Scholar
Donnelly, C., Englund, M., Nielsen, J.P. and Tanggaard, C. (2013) Asymmetric information, self-selection and pricing of insurance contracts: The simple no-claims case. Journal of Risk and Insurance. doi:10.1111/j.1539-6975.2013.01520.x.CrossRefGoogle Scholar
Ehrlich, I. and Becker, G.S. (1972) Market insurance, self-insurance, and self-protection. Journal of Political Economy, 80 (4), 623–648.CrossRefGoogle Scholar
Englund, M., Guillén, M., Gustafsson, J., Nielsen, L.H. and Nielsen, J.P. (2008) Multivariate latent risk: A credibility approach. ASTIN Bulletin, 38 (1), 137–146.CrossRefGoogle Scholar
Englund, M., Gustafsson, J., Nielsen, J.P. and Thuring, F. (2009) Multidimensional credibility with time effects: An application to commercial business lines. Journal of Risk and Insurance, 76 (2), 443–453.CrossRefGoogle Scholar
Finkelstein, A. and Poterba, J.M. (2004) Adverse selection in insurance markets: Policyholder evidence from the U.K. annuity market. Journal of Political Economy, 112 (1), 183–209.CrossRefGoogle Scholar
Frangos, N.E. and Vrontos, S.D. (2001) Design of optimal bonus-malus systems with a frequency and a severity component on an individual basis in automobile insurance. ASTIN Bulletin, 31 (1), 1–22.CrossRefGoogle Scholar
Frees, E.W., Peng, S.H.I. and Valdez, E.A. (2009) Actuarial applications of a hierarchical insurance claims model. ASTIN Bulletin, 39 (1), 165–197.CrossRefGoogle Scholar
Gneezy, U., List, J.A. and Wu, G. (2006) The uncertainty effect: When a risky prospect is valued less than its worst outcome. Quarterly Journal of Economics, 121 (4), 1283–1309.CrossRefGoogle Scholar
Kim, H., Kim, D., Im, S. and Hardin, J.W. (2009) Evidence of asymmetric information in the automobile insurance market: Dichotomous versus multinomial measurement of insurance coverage. Journal of Risk and Insurance, 76 (2), 343–366.CrossRefGoogle Scholar
Kunreuther, H. and Pauly, M. (2005) Insurance decision-making and market behavior. Foundations and Trends in Microeconomics, 1 (2), 63–127.CrossRefGoogle Scholar
Prendergast, C. (1992) The insurance effect of groups. International Economic Review, 33, 567–581.CrossRefGoogle Scholar
Puelz, R. and Snow, A. (1994) Evidence on adverse selection: Equilibrium signaling and cross-subsidization in the insurance market. Journal of Political Economy, 102 (2), 236–257.CrossRefGoogle Scholar
Richaudeau, D. (1999) Automobile insurance contracts and risk of accident: An empirical test using French individual data. Geneva Papers on Risk and Insurance Theory, 24, 97–114.CrossRefGoogle Scholar
Rothschild, M. and Stiglitz, J. (1976) Equilibrium in competitive insurance markets: An essay on the economics of imperfect information. Quarterly Journal of Economics, 90 (4), 629–649.CrossRefGoogle Scholar
Saito, K. (2006) An empirical analysis of the roles of risk aversion in the automobile insurance market. Conference Paper, Annual Meeting of American Risk and Insurance Association 2006, Washington D.C.Google Scholar
Sonnenholzner, M. and Wambach, A. (2009) On the role of patience in an insurance market with asymmetric information. Journal of Risk and Insurance, 73 (2), 323–341.CrossRefGoogle Scholar
Spence, M. (1973) Job market signaling. Quarterly Journal of Economics, 87 (3), 355–374.CrossRefGoogle Scholar