This article examines whether adverse selection or moral hazard could be induced by rate regulation, which prohibits insurance companies from considering some attributes of drivers in setting premiums. Using an individual data set from a heavily regulated automobile insurance market, we arrived at several conclusions, as follows. First, no evidence of adverse selection or moral hazard is found in general: conditional on all the variables observed by insurer, the null hypothesis of independence between risk and coverage is not rejected at reasonable levels of statistical significance. Second, this result is robust in the sense that it holds under several empirical procedures and different definitions of risk and coverage. Third, we find that unobserved variables do not induce adverse selection: the null hypothesis that consumers in risky regions are more likely to purchase insurance is tested against the alternative and rejected. Our study supports the view that the adverse selection phenomenon exists only to a very limited extent in this market. Copyright The Journal of Risk and Insurance, 2006.
We measure the accident externality from driving in the spirit of Edlin and Karaca-Mandic (2006). We collect data that parallel those used in Edlin and Karaca-Mandic and apply their empirical method to gain further insights about the accident externality. Consistent with Edlin and Karaca-Mandic, we find larger external costs for higher density roads, although the sizes largely depend on the variable definition and the model specification. One intriguing result is that per-vehicle external costs are considerably smaller in Japan than those in the U.S. In Kyoto, for example, an additional driver increases accident costs for other drivers by $248--$802, while it is $1,725--$2,432 in California where the traffic density is approximately the same. However, on a per-mile basis, much closer externalities are obtained. This finding indicates that the large externality in high-density roads underscored in Edlin and Karaca-Mandic is partly attributed to the fact that U.S. drivers drive longer distances, comparatively speaking.
We investigate how lighthouses were provided in premodern Japan, with a specific focus on the role of the private sector. Using national survey data on lighthouses collected by the government in 1883, we find that lighthouses constructed by the private sector in the Edo period (1603−1868) accounted for nearly 70% of lighthouses existing at the time of the survey and that there was no significant difference in technical features between private and public lighthouses. However, we observe that almost all private lighthouses were located at ports, and additional case studies indicate that the public authorities endorsed the operation of some lighthouses, which might have contributed to their profits and improved their long‐term survival. We also find that various factors, including the formation of merchant coalitions and whether users were identifiable, influenced whether a private organization could circumvent the free rider problem. (JEL H41, L97, N45)
"This paper examines the effect of mandatory periodic safety inspections on traffic accident rates. Using a data set of more than 15,000 auto insurance policyholders in Japan, we investigate the relationship between car age and accident rates and find little evidence that accident rates decline due to safety inspections, specifically in the inspection year. The result holds, even if we take the heterogeneity across drivers into account, and is robust to various parametric and nonparametric procedures. We conjecture that our results are obtained (a) because most motor vehicle accidents are not caused by mechanical failures and (b) because government regulations impose too strict and frequent inspections on car owners in Japan. "("JEL "C14, K32, L51, L98, R41) Copyright (c) 2008 Western Economic Association International.
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