This paper characterizes the equilibrium of an insurance market where opportunist policyholders may submit fraudulent claims. We assume that insurance policies are traded in a competitive market where insurers cannot distinguish honest policyholders from opportunists. The insurer-policyholder relationship is modelled as an incomplete information game, in which the insurer decides to audit or not. The market equilibrium depends on whether insurers can credibly commit or not to their audit strategies. We show that a no-commitment equilibrium results in a welfare loss for honest individuals that may even be so large that the insurance market completly shuts down. Finally, we show that transferring monitoring costs to a budget-balanced common agency would mi tigate the commi tment problem.
Competing Vertical Structures: Preconmitment and Renegotiation.We consider a mode! where two agents play a (normal form) game on behalf of two principals. We analyze the existence of precommitment effects through public announcement of contract, in a mode! where agency contracts, designed under incomplete information between principal and agent, can be secretly renegotiated. We show that the existence of precommitment effects depends both on the strategic complementarity of the agents' actions and on the direct effect of the opponent's action on each principal's welfare. In our mode!, the possibility of renegotiation is crucial for the existence of precommitment effects. Applications to the field of Industrial Organization are discussed.
Cet article caractérise les mécanismes incitatifs optimaux dans un modèle simple de type principal-agent où sélection adverse et hasard moral interviennent simultanément. Dans un cas simple, on montre que la solution optimale peut être obtenue en utilisant des schémas incitatifs où la rétribution de l'agent dépend linéairement du résultat observé. La solution optimale est également caractérisée dans le cas général et on démontre que celle-ci peut être approximée aussi précisément que l'on veut par des schémas incitatifs quadratiques. Enfin, le modèle est appliqué à différents problèmes d'incitations : politique de régulation d'entreprises, dont les coüts de production sant observables, contrats de services bancaires, planification décentralisée par objectifs.
Abstract:We survey recent developments in the economic analysis of insurance fraud. The paper first sets out the two main approaches to insurance fraud that have been developped in the literature, namely the costly state verification and the costly state falsification. Under costly state verification, the insurer can verify claims at some cost. Claims' verification may be deterministic or random, and it can be conditioned on fraud signals perceived by insurers. Under costly state falsification, the policyholder expends resources for the building-up of his or her claim not to be detected. We also consider the effects of adverse selection, in a context where insurers cannot distinguish honest policyholders from potential defrauders, as well as the consequences of credibility constraints on anti-fraud policies. Finally, we focus attention on the risk of collusion between policyholders and insurance agents or service providers. Keywords:Fraud, audit, verification, falsification, collusion, build-up. AbstractWe survey recent developments in the economic analysis of insurance fraud. The paper …rst sets out the two main approaches to insurance fraud that have been developped in the literature, namely the costly state veri…cation and the costly state falsi…cation. Under costly state veri…cation, the insurer can verify claims at some cost. Claims'veri…cation may be deterministic or random, and it can be conditioned on fraud signals perceived by insurers. Under costly state falsi…cation, the policyholder expends resources for the building-up of his or her claim not to be detected. We also consider the e¤ects of adverse selection, in a context where insurers cannot distinguish honest policyholders from potential defrauders, as well as the consequences of credibility constraints on anti-fraud policies. Finally, we focus attention on the risk of collusion between policyholders and insurance agents or service providers.
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