Hardball and the soft touch: the economics of optimal insurance contracts with costly state verification and endogenous monitoring costs

Article Abstract:

Optimal insurance contracts associated with expensive state verification and endogenous monitoring costs are described. A model that uses asymmetric data on losses and moral hazards, which are important factors in insurance contracts, is employed. Optimal insurance contracts are used to overpay losses that are easy to verify, and to underpay those that are hard to verify. False claims on the part of the insured are then discouraged. This result is consistent with the commonly observed behaviour of insurers.

Regulation, Licensing, and Inspection of Miscellaneous Commercial Sectors, Insurance Regulation ex Auto-State, Insurance policies, Insurance law

---

Adverse selection with endogenous information in insurance markets

Article Abstract:

Adverse selection models assume that risk type is known to the consumer and not the insurer. Since some studies have implied that information has zero social value and negative prior value, the occurrence of adverse selection is being questioned. This was answered by a study which showed that the private value of information is non-negative only when insurers cannot observe consumers' information status or when the latter can be hidden.

Models

---

Market failure with moral hazard and side trading

Article Abstract:

Analysis of two different concepts about the relationship between market failures and moral hazard is undertaken within the context of an insurance market where full information exists. Such information on effort levels and trades is either verifiable or not. Results show that market equilibrium is not affected by incentive externalities although public verifiability of outcomes is considered desirable.

Research, Insurance industry, Welfare economics

Similar abstracts:

• Abstracts: Taxes and the quality of capital . The impact of the corporate income tax: evidence from the state organizational form data
• Abstracts: The Los Angeles riot and the economics of urban unrest. Information technology and the future of cities. Opportunities, race, and urban location: the influence of John Kain
• Abstracts: The estate tax and the demise of the family business. Minimum standards, insurance regulation and adverse selection: evidence from the Medigap market
• Abstracts: Living standards and incentives in transition: the implications of UI exhaustion in Hungary. From welfare to work: does the neighborhood matter?
• Abstracts: Implementing the single banking market in Europe. Central bank independence and inflation expectations: evidence from British index-linked gilts

This website is not affiliated with document authors or copyright owners. This page is provided for informational purposes only. Unintentional errors are possible.