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- Title
QUANTIFYING THE PREMIUM EXTERNALITY OF THE UNINSURED.
- Authors
Sun, Stephen (Teng); Yannelis, Constantine
- Abstract
In insurance markets, the uninsured can generate a negative externality on the insured, leading insurance companies to charge higher premia. Using a novel panel data set and a staggered policy change that introduces exogenous variation in the rate of uninsured drivers at the county level in California, we find that uninsured drivers lead to higher insurance premia: a 1 percentage point increase in the rate of uninsured drivers raises premia by roughly 1%. We calculate the monetary fine on the uninsured that would fully internalize the externality and conclude that actual fines in most US states are inefficiently low.
- Subjects
UNITED States; INSURANCE exchanges; INSURANCE companies; MONETARY policy; INSURANCE premiums; PANEL analysis
- Publication
Journal of the European Economic Association, 2016, Vol 14, Issue 2, p405
- ISSN
1542-4766
- Publication type
Article
- DOI
10.1111/jeea.12148