Browsing by Subject "Adverse selection"

This thesis focuses on the investigation of adverse selection and moral hazard in the Finnish entrepreneurial insurance system. The thesis builds upon previous research on moral hazard and adverse selection in insurance markets, but focuses specifically on the social insurance market for entrepreneurs within sickness and parental allowances. This topic is of interest as mandating social insurance for entrepreneurs is vital, but often lacking due to the flexible nature of entrepreneurial activity. As a result, the social insurance systems may be subject to adverse selection and moral hazard. Rich panel data on insurance contributions of entrepreneurs in Finland allows me to measure the extent of asymmetric information both overall and dynamically. To test the former, I use a positive correlation test. In particular, the test looks at the probability of sickness or having a child in relation to insurance contributions. The results indicate a slight positive correlation between sickness risk and insurance contributions as well as the probability of having a child and insurance contributions. A more significant result is found for the risk of having children in a dynamic sense, showing a strong indication of a rise in insurance contributions around the time of receiving parental allowance. However, the results are more ambiguous in the case of sick pay. These results are robust to several controls as well as two separate identification strategies. Due to the endogeneity of illness or choosing to have children, causal conclusions cannot be drawn from the results.