Department of Economics
213 Social Sciences Building, Box 90097
Durham, NC 27708-0097
NBER Working Papers and Publications
|November 2014||Does Private Information Influence Automobile Insurance Purchase Decisions?|
with Frank A. Sloan, Lindsey M. Eldred: w20679
This study quantifies the importance of private information, separates the extent to which the positive correlation between the accident probability and insurance coverage reflects adverse selection and moral hazard, and analyzes market segmentation on objective accident risk. We use data we collected to examine the importance of potential sources of private information in individualsʼ third- and first-party insurance choices. Individuals with higher subjective accident probabilities have less liability exposure post insurance purchase and more often experience an accident, conditional on factors insurers use for risk classification. This evidence is consistent with the positive correlation between accident occurrence and liability insurance coverage. We find that the positive correlation ...