NO NEWS IS GOOD NEWS: MORAL HAZARD IN OLIGOPOLISTIC INSURANCE MARKETS (BFI WP NO. 2018-22)
Abstract I conduct inference on moral hazard in the Italian automobile insurance market.
I disentangle moral hazard from adverse selection and state dependence by exploiting the nonlinearities in the penalties across driving records and companies, and a discontinuity in the cost of accidents in the last 60 days of the contractual year. I employ a unique matched insurer-insuree panel dataset, containing rich information on 4,316,647 auto insurance contracts underwritten by all Italian insurers. The results demonstrate that moral hazard is a pervasive feature of the market, although its magnitude varies across companies.
THE PERILS OF INSURANCE MARKETS WITH BIG DATA (with Sergio Santoro) (draft available upon request)
Abstract We examine a monopolistic insurance market in which Big (telematic) data recorded by telemonitoring devices allow the insurer to learn about otherwise unobservable ex-ante risk and customize insurance rates.
We show that both a standard and a dynamic telematic contract–premium is contingent on data about actual behavior–co-exist in equilibrium. We employ a unique panel dataset containing rich information on the contracts underwritten in the Italian auto insurance market to i) show that real life contracts are consistent with the prediction of the theory ii) infer the sign of selection into the telematic contract. Our empirical results indicate that telematic contracts greatly ameliorate the moral hazard problem, although advantageous selection and dynamic inefficiencies reduce welfare.
SORTING AND HETEROGENEITY IN INSURANCE MARKETS: EVIDENCE FROM A MATCHED INSURER-INSUREE DATASET (work in progress)
Abstract Using a rich matched insurer-insuree dataset containing information on the auto insurance contracts underwritten in the Italian market I document consumers sorting into companies based on preferences for risk .
I find that consumers choose companies based both on the price for mandatory coverage and on the heterogeneous set of warranties available in the market. Speed of claim liquidation seem to have a minor role in explaining the sorting patterns while insurers’ cost structure determine pricing strategies and the characteristics of the insured pool.
TENURE DEPENDENCE AND INERTIA IN AUTO INSURANCE (work in progress)
Abstract I empirically characterize tenure dependence taking into account dynamic self-selection. I find that the effect of tenure on the switching probability is non-monotonic and that dynamic adverse selection operates, i.e. high risk types are more likely to switch companies. Contractual clauses heavily shape dynamic incentives ameliorating inefficiencies generated by consumers’ lack of committment.
THE EFFECT OF COMPETITION IN THE AUTO INSURANCE MARKET (work in progress)
Abstract In this paper I examine study the association between the level/dispersion of the prices for auto insurance and the intensity of competition across local markets in Italy over the period 2013-2018 using quarterly micro data. I exploit mergers during this period to deal with the endogenous nature of market shares.
Preliminary results indicate that the decrease in the auto insurance prices is primarily driven by the economic cycle, while I find little effect on price dispersion.
ESTIMATING DEMAND FOR INSURANCE (with G. Aryal) (work in progress)
Abstract We estimate demand for insurance in the auto insurance market.
We allow for a rich heterogeneity structure in preferences for risk and switching costs. We show that the model is non parametrically identified by data on prices, clauses an claims. We use the model to perform various counterfactuals that allow us to quantify the relative importance of risk, risk aversion and switching costs in shaping the sorting of consumers into companies and menus of contracts.
ECONOMICS OF PARENTING
OPTIMAL PARENTING STYLES: EVIDENCE FROM A DYNAMIC GAME WITH MULTIPLE EQUILIBRIA (working paper, previously circulated as “Parenting Style and the Development of Human Capital in Children”)
Abstract There is little consensus among social science researchers about the effectiveness of alternative parenting strategies in producing desirable child outcomes.
Some argue that parents should set strict limits on the activities of their adolescent children, while others believe that adolescents should be given relatively wide discretion. In this paper, I develop and estimate a model of parent-child interaction in order to better understand the relationship between parenting styles and the development of human capital in children. Using data from the NLSY97, the estimates of the model indicate that the best parenting style depends on the stock of adolescent human capital. Setting strict rules increases the study time of children with low skills, but is detrimental for adult human of the more knowledgeable teenagers.
THE IMPACT OF BIRTH ORDER AND FAMILY CHARACTERISTICS ON PARENTING PRACTICES: THEORY AND EVIDENCE (working paper)
Abstract In this paper I assess the relative importance of the birth order of the child and of other observable characteristics on the probability parent set strict rules.
I address the correlation of parenting styles with unobservable family factors using a siblings fixed-effect estimator. I exploit the time-variation of the birth order of resident siblings to identify its effect on parenting practices while taking into account unobserved heterogeneity in parental preferences and constraints. Birth order effect are found to be generally not important while parents’ income and education have an impact on the strictness of the limits parents set on children’s leisure activities.
FAMILY CHOICE AND HIGH SCHOOL TRACK: NEW SURVEY DESIGN AND EVIDENCE FROM NORTHERN ITALY (with Pamela Giustinelli) (temporarily abandoned)
PRODUCTIVITY AND INNOVATION
FIRM SUBSIDIES AND THE INNOVATION OUTPUT. WHAT CAN WE LEARN BY LOOKING AT MULTIPLE INVESTMENTS INPUTS? (With A. Sembenelli) Italian Economic Journal, March 2016, Volume 2, Issue 1
Abstract In this paper we address the issue of if and how firm subsidies foster investment in fixed capital and R&D and by doing so they contribute to the innovation output.
We therefore extend the existing literature which so far has mostly focussed on the effects of public subsidies on specific innovation inputs. By using a rich dataset on Italian firms we estimate the relationships between inputs (investments) and innovation outputs (process and product) as well as investment equations in which expected firm subsidies affect the inputs. In order to deal with endogeneity issues we propose an empirical approach which exploits the information and characteristics of our dataset. We find that expected public intervention has an effect on investment in fixed capital and innovation. The impact of firm subsidies on R&D investment is found to be somehow weaker as well as its final effect on innovation.