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Asymmetric information in insurance: general testable implications
Author(s) -
Chiappori PierreAndré,
Jullien Bruno,
Salanié Bernard,
Salanié François
Publication year - 2006
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2006.tb00057.x
Subject(s) - adverse selection , moral hazard , economics , information asymmetry , risk aversion (psychology) , econometrics , actuarial science , ex ante , insurance policy , expected utility hypothesis , microeconomics , financial economics , incentive , macroeconomics
Several recent articles on empirical contract theory and insurance have tested for a positive correlation between coverage and ex post risk, as predicted by standard models of pure adverse selection or pure moral hazard. We show here that the positive correlationproperty can be extended to general setups: competitive insurance markets and cases where risk aversion is public. We test our results on a French dataset. Our tests confirm that the estimated correlation is positive; they also suggest the presence of market power.