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Empirical analysis of moral hazard: A study of avehicle insurance tax reform
Örebro University, Orebro University School of Business, Örebro University, Sweden.
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This paper uses discrete choice and count data models to analyze the effects of a tax on vehicle insurance levied in Sweden in 2007. The analysis is based on a large set of micro level panel data on individual insurance holders at the largest insurance company in Sweden for the period 2006- 2010. Two questions are addressed: How did the tax reform influence the choice of insurance coverage, and how did changes in coverage affect the incidence of claims? The results show that, on average, the tax reform increased the odds of choosing lower and cheaper insurance coverage, in particular for older policy holders. However, switching to lower coverage has not resulted in significant changes in claims.

National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:oru:diva-38891OAI: oai:DiVA.org:oru-38891DiVA: diva2:765072
Projects
Keywords: vehicle insurance, moral hazard, traffic safety, tax reform
Note

Sherzod Yarmukhamedov is an employee of The Swedish National Road and Transport Research Institute (VTI)

Email: sherzod.yarmukhamedov@vti.se

Available from: 2014-11-21 Created: 2014-11-21 Last updated: 2016-11-21Bibliographically approved
In thesis
1. A study of asymmetric information problems in vehicle insurance
Open this publication in new window or tab >>A study of asymmetric information problems in vehicle insurance
2014 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

Insurance is an indispensable part of modern welfare systems. It provides financial protection against unexpected losses and facilitates security and efficiency. Despite these benefits, the insurance literature predicts distortive effects of insurance provision in the form of asymmetric information problems such as adverse selection and moral hazard. However, empirical evidence does not provide unambiguous support for this theoretical prediction.

This dissertation empirically examines a theoretical prediction of the presence of asymmetric information problems in the case of vehicle insurance.

Essay 1 analyzes the effects of a tax reform in Sweden that raised the price of vehicle insurance. The results indicate that the tax reform has increased the odds of switching to lower insurance coverage, in particular among older drivers. However, this switching behavior has not resulted in a significant change of driver behavior in terms of claims.

Essay 2 uses a two-stage procedure to test for the presence of asymmetric information problems in the provision of vehicle insurance. In the first stage, we check for the presence of residual asymmetric information; in the second stage, we identify the source of the information problem, i.e. either adverse selection or moral hazard, or both. Our findings from the first stage estimation indicate the presence of residual asymmetric information in the choice of full insurance with a low deductible. The second stage estimation results reveal that the source of this information problem is moral hazard.

Essay 3 analyzes the impact of insurance on the probability of accidents by investigating the accident risk of insured and uninsured drivers. The results show that uninsured drivers have a higher probability of causing an accident than insured drivers, and that uninsured drivers aged 25-34 pose a greater accident risk than uninsured drivers in other age categories.

Place, publisher, year, edition, pages
Örebro: Örebro university, 2014. 30 p.
Series
Örebro Studies in Economics, ISSN 1651-8896 ; 27
Keyword
asymmetric information, insurance, moral hazard, traffic safety
National Category
Economics
Research subject
Economics
Identifiers
urn:nbn:se:oru:diva-36150 (URN)978-91-7529-043-0 (ISBN)
Public defence
2014-10-17, Forumhuset, Biografen, Örebro universitet, Fakultetsgatan 1, Örebro, 13:15 (English)
Opponent
Supervisors
Available from: 2014-08-28 Created: 2014-08-28 Last updated: 2015-12-28Bibliographically approved

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CiteExportLink to record
Permanent link

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Citation style
  • apa
  • harvard1
  • ieee
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  • Other locale
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Output format
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