Informational Cascade in the Insurance Market |
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| Authors: | S Hun Seog |
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| Institution: | S. Hun Seog is at KAIST Business School, Korea Advanced Institute of Science and Technology, 207-43 Cheongryangri-Dong, Dongdaemun-Gu, Seoul 130-012, Korea. |
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| Abstract: | We develop an informational cascade model based on Bikhchandani, Hirshleifer, and Welch (1992) with applications to the insurance market. We investigate the existence of cascades and the effects of public information on cascades. We apply the results to insurance markets to explain how catastrophic events may lead to demand increases, how loss shocks may lead to insurance cycles, and how the heterogeneity of policyholders affects the choice of limited tort auto insurance in Pennsylvania. |
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