The Empirical Measure of Information Problems with Emphasis on Insurance Fraud and Dynamic Data
Handbook of Insurance, Second Edition, 423-448, 2014
50 Pages Posted: 23 Aug 2012 Last revised: 31 Oct 2023
Date Written: September 14, 2012
Abstract
We discuss the difficult question of measuring the effects of asymmetric information problems on resource allocation. Three problems are examined: moral hazard, adverse selection, and asymmetric learning. One theoretical conclusion, drawn by many authors, is that information problems may introduce significant distortions into the economy. However, we verify, in different markets, that efficient mechanisms have been introduced in order to reduce these distortions and even eliminate, at the margin, some residual information problems. This conclusion is stronger for pure adverse selection. One explanation is that adverse selection is related to exogenous characteristics, while asymmetric learning and moral hazard are due to endogenous actions that may change at any point in time. Dynamic data help to identify the three information problems by permitting causality tests.
Keywords: Empirical measure, information problem, moral hazard, adverse selection, learning, insurance fraud, causality tests, dynamic data
JEL Classification: C12, C18, C23, C26, D80, G22, C25, G11
Suggested Citation: Suggested Citation