American Economic Review Vol. 104 No. 9 2014
Fraudulent Claims and Nitpicky Insurers
Abstract
Insurers have the reputation of being bad payers who nitpick whenever an opportunity arises. However, this nitpicking activity has a positive impact on their auditing strategy since auditing may prove profitable when claims are not fraudulent. We show that reducing the indemnity payments of audited claims induces a lower fraud rate at equilibrium and that some degree of nitpicking is socially optimal when insurance fraud is a concern. Its remains optimal even if it induces adverse effects on policyholders' moral standards.
- DOI
- 10.1257/aer.104.9.2900
- Volume
- 104
- Issue
- 9
- Pages
- 2900-2917
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref