nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒10‒13
three papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Overconfidence, Insurance and Paternalism By Francesco Squintani; Alvaro Sandroni
  2. Liability Insurance under the Negligence Rule By Marie-Cécile Fagart; Claude Fluet
  3. Estimating the Effect of a Change in Insurance Pricing Regime on Accidents with Endogenous Mobility By Georges Dionne; Benoit Dostie

  1. By: Francesco Squintani; Alvaro Sandroni
    Abstract: It is well known that when agents are fully rational, compulsory public insurance may make all agents better off in the Rothschild and Stiglitz (1976) model of insurance markets. We find that when sufficiently many agents underestimate their personal risks, compulsory insurance makes low-risk agents worse off. Hence, behavioural biases may weaken some of the well-established rationales for government intervention based on asymmetric information.
    Date: 2007–10–04
  2. By: Marie-Cécile Fagart; Claude Fluet
    Abstract: We analyze the efficiency properties of the negligence rule with liability insurance, when the tort-feasor's behavior is imperfectly observable both by the insurer and the court. Efficiency is shown to depend on the extent to which the evidence is informative, on the evidentiary standard for finding negligence, and on whether insurance contracts can condition directly on the same evidence as used by courts to assess behavior. When evidence is not directly contractible, the negligence rule with compensatory damages is generally inefficient and can be improved by decoupling liability from the harm suffered by the victim.
    Keywords: Negligence, liability insurance, evidentiary standard, moral hazard, judicial error, decoupling, prudence
    JEL: D82 K41 K42
    Date: 2007
  3. By: Georges Dionne; Benoit Dostie
    Abstract: In this paper, we estimate the impact of introducing a bonus-malus system on the probability of having automobile accidents, taking into account contract duration or the client mobility between insurers. We show that the new incentive scheme reduces accident rates of all policyholders when contract duration is taken into account, but does not affect accident rates of movers that shirk the imposed incentive effects of the new insurance pricing scheme.
    Keywords: Bonus-malus, contract duration, automobile accident, Poisson distribution, right- and left-censoring, exponential distribution
    JEL: J22 J29 C23
    Date: 2007

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