The theory of precautionary saving is shown in this paper to be isomorphic to the Arrow-Pratt theory of risk aversion, making possible the application of a large body of knowledge about risk aversion to precautionary saving, and more generally, to the theory of optimal choice under risk In particular, a measure of the strength of precautionary saving motive analogous to the Arrow-Pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving, and to give a new interpretation of the Oreze-Modigliani substitution effect

Precautionary Saving in the Small and in the Large

The first goal of this paper is to provide a simple and general test of the presence of asymmetric information in contractual relationships within a competitive context. We also argue that insurance data are particularly well suited to such empirical investigations. To illustrate this claim, we use data on contracts and accidents to investigate the extent of asymmetric information in the French market for automobile insurance. Using various parametric and nonparametric methods, we find no evidence for the presence of asymmetric information in this market.

/pdf/testing-for-asymmetric-information-in-insurance-markets-2wy3jb4ndq.pdf

Testing for Asymmetric Information in Insurance Markets

Foreword Valerie Braithwaite Preface 1. Introduction 2. Tax law, the shadow economy and tax non-compliance 3. Social representations of taxes 4. Tax compliance decisions 5. Self-employment and taxpaying 6. Interaction between tax authorities and taxpayers 7. Cautious conclusions.

/pdf/the-economic-psychology-of-tax-behaviour-3dztbpsp8z.pdf

The Economic Psychology of Tax Behaviour

Since the early 1970s, a number of authors have calculated gender wage differentials between women and men of equal productivity. This meta-study provides a new quantitative review of this vast amount of empirical literature on gender wage differentials as it concerns not only differences in methodology, data, and time periods, but also different countries. We place particular emphasis on a proper consideration of the quality of the underlying study which is done by a weighting with quality indicators. The results show that data restrictions - i.e. the limitation of the analysis to new entrants, never-marrieds, or one narrow occupation only - have the biggest impact on the resulting gender wage gap. Moreover, we are able to show what effect a misspecification of the underlying wage equation - like the frequent use of potential experience - has on the calculated gender wage gap. Over time, raw wage differentials worldwide have fallen substantially; however, most of this decrease is due to better labor market endowments of females.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID460605_code031124640.pdf?abstractid=460605&mirid=1&type=2

A Meta-Analysis of the International Gender Wage Gap

We develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts. We account for adverse selection by modeling unobserved heterogeneity in both risk (claim rate) and risk aversion. We find large and skewed heterogeneity in risk attitudes. In addition, women are more risk averse than men, risk aversion exhibits a U-shape with respect to age, and proxies for income and wealth are positively associated with absolute risk aversion. Finally, unobserved heterogeneity in risk aversion is greater than that of risk, and, as we illustrate, has important implications for insurance pricing.

/pdf/estimating-risk-preferences-from-deductible-choice-wx2vyhn9bp.pdf

Estimating risk preferences from deductible choice

The configuration of equilibrium in the market for automobile collision insurance is examined empirically by representing the premium-deductible menu and the demand function as a standard hedonic system. Using contractual data from a representative insurer, we estimate a reduced-form hedonic premium equation and the inverse of the marginal bid equation for insurance coverage. The data reveal an equilibrium with adverse selection and market signaling but lead us to reject the hypothesis that high risks receive contracts subsidized by low risks.

https://www.jstor.org/stable/pdfplus/2138660.pdf

Evidence on Adverse Selection: Equilibrium Signaling and Cross-Subsidization in the Insurance Market

The value of information is studied in a non-expected utility model of ambiguity with second-order probabilities. Information that reduces ambiguity has a positive value for ambiguity-averse decision makers, and the value of information that resolves ambiguity increases with greater ambiguity and with greater ambiguity aversion. Since information that resolves risk is valuable, and must also resolve ambiguity, the value of such information for ambiguity averters increases with greater ambiguity and with greater ambiguity aversion.

Ambiguity and the value of information

Risk Classification is the avenue through which insurance companies compete in order to reduce the cost of providing insurance contracts While the underwriting incentives leading insurers to categorize customers according to risk status are straightforward, the social value of such activities is less clear This chapter reviews the theoretical and empirical literature on risk classification, which demonstrates that the efficiency of permitting categorical discrimination in insurance contracting depends on the informational structure of the environment, and on whether insurance applicants become informed by the classification signal

/pdf/the-theory-of-risk-classification-2ogce867jw.pdf

The theory of risk classification

We present analytic formulas for calculating marginal welfare costs when taxes are levied against the wages of a heterogeneous population of households and marginal tax revenue finances either the supply of a public good or lump‐sum transfers. The formulas are applied to explain the wide discrepancy between estimates of marginal welfare costs for redistribution previously obtained through computer simulation procedures. Our calculations reveal that these procedures introduced lump‐sum transfers that were not specified as part of the reforms to be simulated, but explain most of the differences between their estimates. We also show that welfare cost estimates are quite sensitive to the elasticity of labor supply with respect to exhaustive public spending.

The Marginal Cost of Raising Tax Revenue and Redistributing Income

We show that an increase in uncertainty about the probability of being audited (ambiguity) increases tax compliance for ambiguity-averse taxpayers but reduces compliance for ambiguity lovers. Because experimental evidence reveals considerable heterogeneity with respect to ambiguity preferences, we conclude that fostering uncertainty about the probability of being audited may not be an effective policy for increasing taxpayer compliance. Moreover, because the tax authority can neither categorize nor screen taxpayers on the basis of their preferences for ambiguity, it is not likely to be either a useful or a desirable instrument for increasing taxpayer welfare. (JEL H26, D81)

Ambiguity about Audit Probability, Tax Compliance, and Taxpayer Welfare

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