Moral Hazard and Dynamic Insurance Data

Jaap H. Abbring () and Pierre Chiappori ()

No 316, 2004 Meeting Papers from Society for Economic Dynamics

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

Keywords: Insurance; moral hazard; empirical test of contract theory (search for similar items in EconPapers)
JEL-codes: D82 G22 C41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
Date: 2004
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