Adverse Selection and Moral Hazard in the Dynamic Model of Auto Insurance

Elena Krasnokutskaya () and Przemyslaw Jeziorski
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Przemyslaw Jeziorski: UC Berkeley

No 1514, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We use the data on multiple years of contract choices and claims by customers of a major Portuguese car insurance company to investigate a possibility that agent’s risk is modifiable through costly (unobserved) effort. Using a model of contract choice and endogenous risk production we demonstrate the economic importance of moral hazard, measure the relative importance of agents’ private information on cost of reducing risk and risk aversion, and evaluate the relative effectiveness of dynamic versus static contract features in incentivizing effort and inducing sorting on unobserved risk.

Date: 2016
New Economics Papers: this item is included in nep-com, nep-cta, nep-ias, nep-tre and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1514

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