Document Type : Original Research Paper

Authors

• G. Mahdavi
• M. Rajaei

Department of Economic Development and Planning, Eco Insurance Institute of Higher Education, Allameh Tabatabai University, Tehran, Iran

Abstract

The conventional theory of adverse selection in the market of asymmetric information expects that the phenomenon of adverse selection will always occur in this market and the bad product will remove the good product from the market and also reduce the efficiency of the market and lead to market failure. Among the markets where this issue can arise is the insurance market. In the 90s, the findings of some researchers announced the occurrence of favorable selection phenomenon in the insurance market. These researches showed that if by focusing on the degree of risk aversion of people and their willingness to take preventive efforts, a negative correlation can be observed between risk aversion and risk taking, as well as between the amount of damage and insurance demand and a positive correlation between preventive efforts and insurance demand. He said that there is a favorable choice in that field of insurance, and in this case, the claim of pushing good customers out of the market along with asymmetric information will be rejected. In line with this issue, this study was conducted in Iran's car body insurance. The researcher tested this phenomenon with a field study and with the help of distributing and collecting questionnaires in the city of Tehran and also using the probit econometric method and confirmed the existence of a favorable selection phenomenon in the car body insurance market.

Keywords

• Adverse Selection
• Asymmetric information
• Advantageous selection
• Automobile Collision Insurance