Testing for Hidden Information and Action in Automobile Insurance Market

I test the presence of hidden information and action in the automobile insurance market using a data set from several Colombian insurers. To identify the presence of hidden information I find a common knowledge variable providing information on policyholder s risk type which is related to both experienced risk and insurance demand and that was excluded from the pricing mechanism. Such unused variable is the record of policyholder s traffic offenses. I find evidence of adverse selection in six of the nine insurance companies for which the test is performed. From the point of view of hidden action I develop a dynamic model of effort in accident prevention given an insurance contract with bonus experience rating scheme and I show that individual accident probability decreases with previous accidents. This result brings a testable implication for the empirical identification of hidden action and based on that result I estimate an econometric model of the time spans between the purchase of the insurance and the first claim, between the first claim and the second one, and so on. I find strong evidence on the existence of unobserved heterogeneity that deceives the testable implication. Once the unobserved heterogeneity is controlled, I find conclusive statistical grounds supporting the presence of moral hazard in the Colombian insurance market.

Academic achievement in sciences: the role of preferences and educative assets

This paper provides new evidence on the effect of pupil’s self-motivation and academic assets allocation on the academic achievement in sciences across countries. By using the Programme for International Student Assessment 2006 (PISA 2006) test we find that both explanatory variables have a positive effect on student’s performance. Self-motivation is measured through an instrument that allows us to avoid possible endogeneity problems. Quantile regression is used for analyzing the existence of different estimated coefficients over the distribution. It is found that both variables have different effect on academic performance depending on the pupil’s score. These findings support the importance of designing focalized programs for different populations, especially in terms of access to information and communication technologies such as internet.