Resource title

Reducing Asymmetric Information in Insurance Markets: Cars with Black Boxes

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Resource description

We examine the effects of ex post revelation of information about the risk type or the risk-reducing behavior of insureds in automobile insurance markets both for perfect competition and for monopoly. Specifically, we assume that insurers can offer a contract with information revelation ex post, i.e., after an accident has occurred, in addition to the usual second-best contracts. Under moral hazard this always leads to a Paretoimprovement of social welfare. For adverse selection we find that this is also true except when bad risks under self-selecting contracts received an information rent, i.e., under monopoly or under competition with cross-subsidization from low to high risks. Regulation can be used to establish Pareto-improvement also in these cases. Privacy concerns do not alter our positive welfare results.

Resource author

Lilia Filipova, Peter Welzel

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22793

Resource license

Adapt according to the presented license agreement and reference the original author.