Ex Post Moral Hazard and Bayesian Learning in Insurance

Michael Ludkovski and Virginia R. Young

Journal of Risk & Insurance, 2010, vol. 77, issue 4, 829-856

Abstract: We study a dynamic insurance market with asymmetric information and ex post moral hazard. In our model, the insurance buyer's risk type is unknown to the insurer; moreover, the buyer has the option of not reporting losses. The insurer sets premia according to the buyer's experience rating, computed via Bayesian estimation based on buyer's history of reported claims. Accordingly, the buyer has strategic incentive to withhold information about losses. We construct an insurance market information equilibrium model and show that a variety of reporting strategies are possible. The results are illustrated with explicit computations in a two‐period risk‐neutral case study.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/j.1539-6975.2010.01366.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:77:y:2010:i:4:p:829-856

Ordering information: This journal article can be ordered from
http://www.wiley.com/bw/subs.asp?ref=0022-4367

Access Statistics for this article

Journal of Risk & Insurance is currently edited by Joan T. Schmit

More articles in Journal of Risk & Insurance from The American Risk and Insurance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().