The importance of the choice of test for finding evidence of asymmetric information

Catherine Donnelly; Martin Englund; Jens Perch Nielsen

doi:10.1017/asb.2013.33

The importance of the choice of test for finding evidence of asymmetric information

Catherine Donnelly, Martin Englund, Jens Perch Nielsen

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Abstract

We put one of the predictions of adverse-selection models to the test, using data from the Danish automobile insurance market: that there is a positive correlation between claims risk and insurance coverage. We can find a statistically significant insurance coverage–risk correlation when coverage is expressed relative to the insurance premium, but not when it is expressed in monetary terms.

Original language	English
Pages (from-to)	173-195
Number of pages	23
Journal	ASTIN Bulletin: The Journal of the IAA
Volume	44
Issue number	2
Early online date	16 Jan 2014
DOIs	https://doi.org/10.1017/asb.2013.33
Publication status	Published - 2014

Keywords

Adverse selection
moral hazard
automobile insurance
learning
bivariate probit

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10.1017/asb.2013.33

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abstract = "We put one of the predictions of adverse-selection models to the test, using data from the Danish automobile insurance market: that there is a positive correlation between claims risk and insurance coverage. We can find a statistically significant insurance coverage–risk correlation when coverage is expressed relative to the insurance premium, but not when it is expressed in monetary terms.",

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KW - learning

KW - bivariate probit

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The importance of the choice of test for finding evidence of asymmetric information

Abstract

Keywords

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