An experimental approach to the effectiveness of an incentive system against moral hazard in the insurance market

Although traditional Japanese insurance theory has tended to assume the basic altruism of policyholders, this assumption may not be warranted. Many people might be opportunists rather than altruists. So in the actual insurance market, moral hazard may occur not accidentally but naturally. Without ef...

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Bibliographic Details
Published in:Journal of risk research 2001-07, Vol.4 (3), p.291-301
Main Authors: Takao, Atsushi, Okura, Mahito
Format: Article
Language:English
Subjects:
Altruism
Asymmetric information
Economic behaviour
Insurance
Insurance companies
Insurance Market
Mathematical economics
Moral Hazard
Penalties Negative Incentive
Risk
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Summary:Although traditional Japanese insurance theory has tended to assume the basic altruism of policyholders, this assumption may not be warranted. Many people might be opportunists rather than altruists. So in the actual insurance market, moral hazard may occur not accidentally but naturally. Without effective incentive mechanisms, policyholders may deviate from their original purpose. It is important to design penalties as negative incentives for the control and prevention of moral hazard. We test these propositions here by means of a game theory and questionnaire. The reason why we use a game theory and carry out the questionnaire is that it is not suitable to apply the econometric model to collect reliable data about moral hazard.
ISSN:1366-9877
1466-4461
DOI:10.1080/13669870010004960