Identifying moral hazard in car insurance contracts

Sarit Weisburd*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

18 Scopus citations

Abstract

This paper capitalizes on a unique situation in Israel where car insurance coverage is often distributed as a benefit by employers. In our sample, employer-determined coverage resulted in an average $235 discount in accident costs. Using instrumental variable analysis on data provided by an insurance firm in Israel (2001-2008), we find that each $100 reduction in accident costs results in a 1.7 percentage point increase in the probability of an accident. At an average accident rate of 16.3 percent, this 10 percent increase in auto accidents can be interpreted as the effect of moral hazard on car accidents.

Original languageAmerican English
Pages (from-to)301-313
Number of pages13
JournalReview of Economics and Statistics
Volume97
Issue number2
DOIs
StatePublished - 1 May 2015
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2015 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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