Lilia Filipova
Endogenous Information and Privacy in Automobile Insurance Markets
Abstract:
This paper examines the implications of insurers’ offering a
voluntary monitoring technology to insureds in automobile insurance
markets with adverse selection and without commitment. Under the
consideration of the inherent costs related to the loss of privacy, the
paper analyzes the incentives of insureds to reveal information,
whereby they can decide how much or what quality of information to
reveal. It is also allowed for the possibility that high risk
individuals might mimic low risk individuals. The resulting market
equilibrium is characterized and it is shown, that it will never be
optimal for insureds to reject the monitoring technology and that under
certain conditions, which are specified in the paper, it will be
optimal for them to reveal complete information. Concerning the welfare
effects both low risk and high risk individuals will always be better
off. Unless it is optimal for individuals to reveal complete
information, an all-or-nothing nature of the monitoring technology will
not be efficient.
JEL: D82, G22
Paper:
Paper available as pdf-file.
Beitrag Nr. 284, Volkswirtschaftliche Diskussionsreihe, Institut
für
Volkswirtschaftslehre der Universität Augsburg
Contact:
Lilia Filipova,
University
of Augsburg, Department of
Economics,
Universitätsstr. 16,
D-86159 Augsburg, Germany, Phone +49-821-598-4314; Fax +49-821-598-4230
E-mail: lilia.filipova@wiwi.uni-augsburg.de
v.
K., 04.05.2006