We investigate the cost of legal restrictions on experience rating in auto and home insurance. The cost is an opportunity cost as experience rating can mitigate the problems associated with unobserved heterogeneity in claim risk, including mispriced coverage and resulting demand distortions. We assess this cost through a counterfactual analysis in which we explore how risk predictions, premiums, and demand in home insurance and two lines of auto insurance would respond to unrestricted multiline experience rating. Using claims data from a large sample of households, we first estimate the variance‐covariance matrix of unobserved heterogeneity in claim risk. We then show that conditioning on claims experience leads to material refinements of predicted claim rates. Last, we assess how households’ demand for coverage would respond to multiline experience rating. We find that the demand response would be large.

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The Cost of Legal Restrictions on Experience Rating

Catching up or crowding out? The crowd-out effects of catch-up retirement contributions on non-retirement saving

Dynamic and asymmetric effects between carbon emission trading, financial uncertainties, and Chinese industry stocks: Evidence from Quantile-on-quantile and Causality-in-quantiles analysis

An input-output-based Bayesian neural network method for analyzing carbon reduction potential: A case study of Guangdong province

Multidimensional risk spillovers among carbon, energy and nonferrous metals markets: Evidence from the quantile VAR network

Spillover effects and nonlinear correlations between carbon emissions and stock markets: An empirical analysis of China's carbon-intensive industries

We study the effects of quasi-random variation in unearned income on labor force participation, earnings, business income, capital gains realizations, retirement savings, and unemployment compensation. To identify these income effects, we exploit an age discontinuity in the federal tax system: parents whose children are born in December of year t-1 can claim child-related tax benefits for that year, whereas otherwise-similar parents whose children are born in January of year t cannot. We use a panel of administrative tax data comprised of the universe of married households with a child born in December or January in years 2001 through 2013. Over this period, the average child tax benefit was about $1,800. Using a regression discontinuity research design, we find approximately zero treatment effects on the intensive and extensive margin for all outcome variables studied. Our results are consistent with precise zero income effects and suggest that households do not learn about (and respond to) child tax benefits in the first year they are claimed.

The Absence of Income Effects at the Onset of Child Tax Benefits

We examine the stability of risk preferences across contexts involving different stakes. Using data on households' deductible choices in three property insurance coverages and their limit choices in two liability insurance coverages, we assess the stability across the five contexts in the ordinal ranking of the households' willingness to bear risk. We find evidence of stability across contexts involving stakes of the same magnitude, but not across contexts involving stakes of very different magnitudes. Our results appear to be robust to heterogeneity in wealth and access to credit, complicating seemingly ready explanations.

/pdf/different-contexts-different-risk-preferences-1fydjyvaws.pdf

Lin Xu

Papers

Spillover effects and nonlinear correlations between carbon emissions and stock markets: An empirical analysis of China's carbon-intensive industries

The Absence of Income Effects at the Onset of Child Tax Benefits

Different Contexts, Different Risk Preferences?