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

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Abstract:

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.

Keywords: INSURANCE MARKET; MORAL HAZARD; NEGATIVE INCENTIVE; PENALTIES

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/13669870010004960

Publication date: July 1, 2001

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