Measuring Moral Hazard Using Insurance Panel Data

This paper describes two new methods for measuring moral hazard in insurance settings with panel data. The methods are able to measure moral hazard separately from adverse selection. The first method uses the variation in risk over different objects with different levels of insurance owned by the same person to measure the effect of insurance on precautionary effort. The second method identifies moral hazard using differences in incentives for precautionary effort between the beginning and end of the contract period. I demonstrate the methods using a detailed space ship insurance data from a large virtual world called