Price Cutting in Liability Insurance Markets

This article analyzes alleged underpricing of general liability insurance prior to the mid-1980s liability insurance "crisis." The theoretical analysis considers whether moral hazard and/or heterogeneous information for forecasting claim costs can cause some firms to price too low and depress other firms' prices. Crosssectional analysis of insurer loss forecast revisions (which should be greater for firms with low prices caused by moral hazard or heterogeneous information) and premium growth provides evidence consistent with low pricing due to moral hazard but not heterogeneous information. The evidence also implies that shifts in the loss distribution produced large industrywide forecast errors. Disciplines Education Economics | Insurance | Other Education | Real Estate This journal article is available at ScholarlyCommons: http://repository.upenn.edu/hcmg_papers/121 Price Cutting in Liability Insurance Markets Author(s): Scott E. Harrington and Patricia M. Danzon Source: The Journal of Business, Vol. 67, No. 4 (Oct., 1994), pp. 511-538 Published by: The University of Chicago Press Stable URL: http://www.jstor.org/stable/2353321 Accessed: 06-06-2016 15:41 UTC Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://about.jstor.org/terms JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. The University of Chicago Press is collaborating with JSTOR to digitize, preserve and extend access to The Journal of Business This content downloaded from 130.91.116.52 on Mon, 06 Jun 2016 15:41:09 UTC All use subject to http://about.jstor.org/terms