Is Honesty the Best Policy? Curtailing Insurance Fraud through Optimal Incentive Contracts
Bibliographic Data
| ID | 10180859 |
|---|---|
| Authors | Keith J Crocker (0000-0002-5919-5274, Risk Management Solutions (United Kingdom)), John Morgan (0000-0001-9224-5483, Princeton University) |
| Year | 1998 |
| Volume | 106 |
| Issue | 2 |
| Pages | 355-375 |
| Publication date | 1998-04-01 |
| Open Access | No |
| Type | ARTICLE |
| Venue | Journal of Political Economy (JOURNAL) |
| Journal identifiers | ISSN: 0022-3808 • E-ISSN: 1537-534X |
| Publisher | University of Chicago Press (PUBLISHER • US) |
| DOI | 10.1086/250012 |
| OpenAlex | W2087119732 |
| Language | EN |
| Citations received | 5 |
| References cited | 7 |
An incentive contracting approach is used to characterize optimal contracts when insured individuals possess private information about their losses and are able to misrepresent permanently their loss magnitudes by engaging in the falsification of claims. We demonstrate that efficient agreements necessarily induce some falsification but that the extent of such claims inflation is mitigated partially by an indemnification schedule that overcompensates small losses while overpaying larger ones. The differential costs of generating insurance claims through falsification provide an avenue by which the heterogencous insureds can credibly signal their underlying losses and are exploited in an optimal contract to implement loss‐contingent insurance payments
Actuarial science · Business · Economics · Honesty · Incentive · Insurance policy · Microeconomics · Payment · Private information retrieval · Schedule · Auction Theory and Applications · Computer Science · Experimental Behavioral Economics Studies · Finance · Law, Economics, and Judicial Systems
Moral Hazard and Observability
Optimal contracts and competitive markets with costly state verification
Incentive Compatibility and the Bargaining Problem
Monopoly and product quality
An Exploration in the Theory of Optimum Income Taxation
Workers' Compensation and Moral Hazard
Optimal Contracts under Costly State Falsification
| Citations per year | 0.2 |
|---|---|
| Citation span | 2001 - 2026 (26) |
| Highly cited | No |