Download this Paper Open PDF in Browser

Unobserved Heterogeneity, Experience Rating, and Insurance Demand

52 Pages Posted: 16 Nov 2012 Last revised: 4 Jan 2017

Levon Barseghyan

Cornell University

Francesca Molinari

Cornell University - Department of Economics

Darcy Steeg Morris

Government of the United States of America - Bureau of the Census

Joshua C. Teitelbaum

Georgetown University Law Center

Date Written: December 31, 2016

Abstract

Using data on claims experience in auto and home insurance, we estimate the variance-covariance matrix of unobserved heterogeneity in claim risk and explore how the demand for coverage would respond to multiline experience rating under different theories of risky choice. Our analysis sheds light on the potential for unpriced heterogeneity to distort the demand for insurance.

Keywords: claim rates, experience rating, insurance law, risk type, unobserved heterogeneity

JEL Classification: C58, D12, D82, G22, K23

Suggested Citation

Barseghyan, Levon and Molinari, Francesca and Steeg Morris, Darcy and Teitelbaum, Joshua C., Unobserved Heterogeneity, Experience Rating, and Insurance Demand (December 31, 2016). Georgetown Law and Economics Research Paper No. 12-040. Available at SSRN: https://ssrn.com/abstract=2176295 or http://dx.doi.org/10.2139/ssrn.2176295

Levon Barseghyan

Cornell University ( email )

Ithaca, NY 14853
United States

Francesca Molinari

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6367 (Phone)
607-255-2818 (Fax)

HOME PAGE: http://www.arts.cornell.edu/econ/fmolinari/

Darcy Steeg Morris

Government of the United States of America - Bureau of the Census

4600 Silver Hill Road
Washington, DC 20233
United States

Joshua Teitelbaum (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue NW
Washington, DC 20001
United States
202-661-6589 (Phone)

Paper statistics

Downloads
313
Rank
81,949
Abstract Views
1,621