nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2013‒09‒25
two papers chosen by
Simona Fabrizi
Massey University, Albany

  1. Productivity insurance: the role of unemployment benefits in a multi-sector model By David L. Fuller; Marianna Kudlyak; Damba Lkhagvasuren
  2. Empirical analysis of moral hazard: a study of a vehicle insurance tax reform By Yarmukhamedov, Sherzod

  1. By: David L. Fuller; Marianna Kudlyak; Damba Lkhagvasuren
    Abstract: We construct a multi-sector search and matching model where the unemployed receive idiosyncratic productivity shocks that make working in certain sectors more productive than in the others. Agents must decide which sector to search in and face moving costs when leaving their current sector for another. In this environment, unemployment is associated with an additional risk: low future wages if mobility costs preclude search in the appropriate sector. This introduces a new role for unemployment benefits—productivity insurance while unemployed. Analytically, we characterize two competing effects of benefits on productivity, a moral hazard effect and a consumption effect. In a stylized quantitative analysis, we show that the consumption effect dominates, so that unemployment benefits increase per-worker productivity. We also analyze the welfare-maximizing benefit level and find that it decreases as moving costs increase.
    Date: 2013
  2. By: Yarmukhamedov, Sherzod (VTI)
    Abstract: This paper uses discrete choice and count data models to analyze the effects of a tax on vehicle insurance levied in Sweden in 2007. The analysis is based on a large set of micro-level panel data on individual insurance holders at the largest insurance company in Sweden for the period 2006-2010. Two questions are addressed: How did the tax reform influence the choice of insurance coverage, and how did changes in coverage affect the incidence of claims? The results show that, on average, the tax reform increased the odds of choosing lower insurance coverage by 47 percent, and that the tax reform had more impact on older drivers. However, switching to lower coverage due to the tax reform has not resulted in significant changes in claim distributions, though the incidence of claims decreased by 20 percent for switchers aged 35-44 in the pre-reform period, indicating a mitigation of ex ante moral hazard in vehicle insurance.
    Keywords: Vehicle insurance; Moral hazard; Traffic safety; Tax reform
    JEL: C33 C54 D82 H20 L51
    Date: 2013–09–19

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