Lilia Filipova, Peter
Welzel
Reducing Asymmetric Information in Insurance Markets: Cars with
Black Boxes
Abstract:
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 Pareto-improvement 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.
JEL: D82, G22
Paper:
Paper available as pdf-file.
Beitrag Nr. 270, 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
Peter Welzel, University of Augsburg, Department of Economics,
Universitätsstr. 16,
D-86159 Augsburg, Phone +49-821-598-4186; Fax +49-821-598-4230
E-Mail: peter.welzel@wiwi.uni-augsburg.de
v.
K., 28.02.2005