The Empirical Measure of Information Problems with Emphasis on Insurance Fraud

Abstract

We discuss the difficult question of measuring the effects of asymmetric information problems on resource allocation. Two of them are retained: moral hazard and adverse selection. One theoretical conclusion, shared by many authors, is that information problems may introduce significant distortions into the economy. However, we can verify, in different markets, that efficient mechanisms have been introduced in order to reduce these distortions and even eliminate, at the margin, some residual information problems. This conclusion is stronger for adverse selection. One explanation is that adverse selection is related to exogenous characteristics while moral hazard is due to endogenous actions that may change at any point in time.