Identification of Insurance Models with Multidimensional Screening
55 Pages Posted: 30 Jun 2012 Last revised: 10 Mar 2016
Date Written: Jan 16, 2016
Abstract
This paper addresses the identification of insurance models with multidimensional screening where insurees have private information about their risk and risk aversion. The model includes a random damage and the possibility of several claims. Screening of insurees relies on their certainty equivalence. The paper then investigates how data availability on the number of offered coverages and reported claims affects the identification of the model primitives under four different scenarios. We show that the model structure is identified despite bunching due to multidimensional screening and/or a finite number of offered coverages. The observed number of claims plays a key role in the identification of the joint distribution of risk and risk aversion. In addition, the paper derives all the restrictions imposed by the model on observables. Our results are constructive with explicit equations for estimation and model testing.
Keywords: Insurance, Identification, Adverse Selection, Multidimensional Screening.
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