Dr David Rowell presented a paper titled “Estimating the Total Cost of Moral Hazard in a Market for Automobile Insurance: A Mixed-Process Estimator Approach” to the 43rd Seminar of the European Group of Risk and Insurance Economists (EGRIE), Nicosia, Cyprus.
Two types of moral hazard are of interest in the literature on risk and insurance: ex ante moral hazard is the effect that the possession of insurance may have on the loss due to an insurable event and ex post moral hazard is the effect that insurance may have on the loss once the insured event occurs. The expected loss of the insured event is the sum of these effects. In this paper, we present an empirical test for total moral hazard in a market for automobile insurance using a mixed-process estimator approach. Our results suggest that total moral hazard increases the expected cost of automobile repairs by approximately 75%; the ex ante and ex post moral hazard contributions were 35 % and 65%, respectively.