Separating Moral Hazard from Adverse Selection in Automobile Insurance

Longitudinal Evidence from France

G. Dionne, P.C. Michaud, M. Dahchour

Research output: Working paperDiscussion paperOther research output

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Abstract

This paper uses longitudinal data to perform tests of asymmetric information in the French automobile insurance market for the 1995-1997 period.This market is characterized by the presence of a regulated experience-rating scheme (bonusmalus).We demonstrate that the result of the test depends crucially on how the dynamic process between insurance claims and contract choice is modelled.We apply a Granger causality test controlling for the unobservables.We find evidence of moral hazard which we distinguish from adverse selection using a multivariate dynamic panel data model.Experience rating appears to lead high risk policyholders to choose contracts that involve less coverage over time. These policyholders respond to contract changes by increasing their unobservable efforts to reduce claims.
Original languageEnglish
Place of PublicationTilburg
PublisherEconometrics
Number of pages41
Volume2004-79
Publication statusPublished - 2004

Publication series

NameCentER Discussion Paper
Volume2004-79

Fingerprint

Adverse selection
Experience rating
Moral hazard
France
Automobile insurance
Granger causality test
Dynamic panel data model
Asymmetric information
Insurance market
Contract choice
Longitudinal data
Dynamic process
Insurance

Keywords

  • moral hazard
  • cars
  • insurance
  • road construction
  • safety
  • panel data

Cite this

Dionne, G., Michaud, P. C., & Dahchour, M. (2004). Separating Moral Hazard from Adverse Selection in Automobile Insurance: Longitudinal Evidence from France. (CentER Discussion Paper; Vol. 2004-79). Tilburg: Econometrics.
Dionne, G. ; Michaud, P.C. ; Dahchour, M. / Separating Moral Hazard from Adverse Selection in Automobile Insurance : Longitudinal Evidence from France. Tilburg : Econometrics, 2004. (CentER Discussion Paper).
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Dionne, G, Michaud, PC & Dahchour, M 2004 'Separating Moral Hazard from Adverse Selection in Automobile Insurance: Longitudinal Evidence from France' CentER Discussion Paper, vol. 2004-79, Econometrics, Tilburg.

Separating Moral Hazard from Adverse Selection in Automobile Insurance : Longitudinal Evidence from France. / Dionne, G.; Michaud, P.C.; Dahchour, M.

Tilburg : Econometrics, 2004. (CentER Discussion Paper; Vol. 2004-79).

Research output: Working paperDiscussion paperOther research output

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Dionne G, Michaud PC, Dahchour M. Separating Moral Hazard from Adverse Selection in Automobile Insurance: Longitudinal Evidence from France. Tilburg: Econometrics. 2004. (CentER Discussion Paper).