Ítem
Acceso Abierto
Testing for Hidden Information and Action in Automobile Insurance Market
Título de la revista
Autores
García Rubiano, Juan Pablo
Archivos
Fecha
2009-12-01
Directores
Bardey, David
ISSN de la revista
Título del volumen
Editor
Universidad del Rosario
Citations
Métricas alternativas
Resumen
Abstract
I test the presence of hidden information and action in the automobile insurance market
using a data set from several Colombian insurers. To identify the presence of hidden information
I find a common knowledge variable providing information on policyholder s
risk type which is related to both experienced risk and insurance demand and that was excluded
from the pricing mechanism. Such unused variable is the record of policyholder s
traffic offenses. I find evidence of adverse selection in six of the nine insurance companies
for which the test is performed. From the point of view of hidden action I develop
a dynamic model of effort in accident prevention given an insurance contract with bonus
experience rating scheme and I show that individual accident probability decreases with
previous accidents. This result brings a testable implication for the empirical identification
of hidden action and based on that result I estimate an econometric model of the time
spans between the purchase of the insurance and the first claim, between the first claim
and the second one, and so on. I find strong evidence on the existence of unobserved heterogeneity
that deceives the testable implication. Once the unobserved heterogeneity is
controlled, I find conclusive statistical grounds supporting the presence of moral hazard
in the Colombian insurance market.
Palabras clave
Insurance , Adverse selection , Moral hazard , Empirical tests of contract theory
Keywords
Insurance , Adverse selection , Moral hazard , Empirical tests of contract theory
