Testing for asymmetric information in insurance markets: A test for ex ante moral hazard revisited

David Rowell; Son Hong Nghiem; Luke B. Connelly

doi:10.1016/j.econlet.2016.10.044

Testing for asymmetric information in insurance markets: A test for ex ante moral hazard revisited

David Rowell^*, Son Hong Nghiem, Luke B. Connelly

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

Abstract

The disentanglement of adverse selection from ex ante moral hazard remains an empirical challenge. Our comment dissects a natural experiment proposed by Chiappori and Salanié (2000) to test for ex ante moral hazard. Firstly, we argue that their test, as proposed, is too simple and too general to enable reliable inferences about the existence of ex ante moral hazard to be drawn and the reported negative coefficient does not rule out moral hazard. Secondly, their analysis strongly suggests that their proposed instrument (inherited bonus malus) is endogenously determined and therefore does not satisfy the technical requirements of a natural experiment.

Original language	English
Pages (from-to)	4-5
Number of pages	2
Journal	Economics Letters
Volume	150
DOIs	https://doi.org/10.1016/j.econlet.2016.10.044
Publication status	Published - 1 Jan 2017
Externally published	Yes

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title = "Testing for asymmetric information in insurance markets: A test for ex ante moral hazard revisited",

abstract = "The disentanglement of adverse selection from ex ante moral hazard remains an empirical challenge. Our comment dissects a natural experiment proposed by Chiappori and Salani{\'e} (2000) to test for ex ante moral hazard. Firstly, we argue that their test, as proposed, is too simple and too general to enable reliable inferences about the existence of ex ante moral hazard to be drawn and the reported negative coefficient does not rule out moral hazard. Secondly, their analysis strongly suggests that their proposed instrument (inherited bonus malus) is endogenously determined and therefore does not satisfy the technical requirements of a natural experiment.",

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AU - Connelly, Luke B.

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AB - The disentanglement of adverse selection from ex ante moral hazard remains an empirical challenge. Our comment dissects a natural experiment proposed by Chiappori and Salanié (2000) to test for ex ante moral hazard. Firstly, we argue that their test, as proposed, is too simple and too general to enable reliable inferences about the existence of ex ante moral hazard to be drawn and the reported negative coefficient does not rule out moral hazard. Secondly, their analysis strongly suggests that their proposed instrument (inherited bonus malus) is endogenously determined and therefore does not satisfy the technical requirements of a natural experiment.

KW - Moral hazard

KW - Natural experiment

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JF - Economics Letters

ER -

Testing for asymmetric information in insurance markets: A test for ex ante moral hazard revisited

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