Asymmetric information in insurance: general testable implications

Chiappori, Pierre A.; Jullien, Bruno; Salanie, Bernard; Salanie, Francois

Several recent articles on empirical contract theory and insurance have tested for a positive correlation between coverage and ex post risk, as predicted by standard models of pure adverse selection or pure moral hazard. We show here that the positive correlation property can be extended to general setups: competitive insurance markets and cases where risk aversion is public. We test our results on a French dataset. Our tests confirm that the estimated correlation is positive; they also suggest the presence of market power.



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The RAND Journal of Economics

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March 10, 2015