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on Contract Theory and Applications |
| By: | Lionel Thomas (CRESE - Centre de REcherches sur les Stratégies Economiques - UFC - UFC - Université de Franche-Comté, UBFC - Université Bourgogne Franche-Comté) |
| Abstract: | This paper studies the optimal contract offered by a risk-neutral principal to a risk-averse agent when the agent’s hidden efficiency and action both improve the probability of the project being successful. We show that if the agent is sufficiently prudent and efficient, the principal induces a higher probability of success than under moral hazard, despite the costly informational rent given up. Moreover, the conditions to avoid pooling are difficult to satisfy because of the different kinds of incentives to be managed and the overall trade-off between rent extraction, insurance, and efficiency involved. |
| Keywords: | Adverse selection, moral hazard, risk aversion, prudence. |
| Date: | 2016–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01374709&r=cta |
| By: | Elena Krasnokutskaya (Johns Hopkins University); Przemyslaw Jeziorski (UC Berkeley) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:1514&r=cta |
| By: | Rocha, M.; Greve, T. |
| Abstract: | This Consider an oligopolistic industry where two firms have access to the same technology and compete in prices, but one firm has access to better information about the customers in the market. We assume that better information allows the better informed firm to attract specific customers. The better informed firm obtains a first customer contact advantage, whereas the uninformed firm can only offer a menu of prices without being able to pre-identify the types of customers. We show that better information does not lead to higher profit. |
| JEL: | D43 D82 L13 |
| Date: | 2016–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1657&r=cta |
| By: | Pierre Picard (Ecole Polytechnique [Palaiseau]); Kili Wang (Tamkang University) |
| Abstract: | The delegation of services from producers to retailers is frequently at the origin of transaction costs, associated with the discretion in the way retailers do their job. This is particularly the case when retailers and customers collude to exploit loopholes in the contracts between producers and customers. In this paper, we analyze how insurance distribution channels may affect such misbehaviors, when car repairers are joining policy holders to defraud insurers. We focus attention on the Taiwan automobile insurance market by using a database provided by the largest Taiwanese automobile insurer. The theoretical underpinning of our analysisis provided by a model of claims fraud with collusion and audit. Our econometric analysis con firms that fraud occurs through the postponing of claims to the end of the policy year, possibly by filing on single claim for several events. It highlights the role of car dealer owned insurance agents in the collusive fraud mechanism. |
| Keywords: | Insurance, Fraud, Audit, Insurance distribution |
| Date: | 2016–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01385502&r=cta |