Economic Theory Commons^™

Usage-Based Insurance Or The Implications Of Taking Big Brother For A Ride, Devina Lakhtakia

Major Papers

The use of telematics in the automobile industry has been growing recently to resolve the problem of asymmetric information in the insurance market related to the identification of the type of a driver. This paper aims to study the impact of the introduction of usage-based insurance on the market participants taking into account the privacy costs associated with the installation of such a behaviour-monitoring device. We assume that UBI is offered as part of the contract to the agents and is voluntary to install. Our findings suggest that no matter how highly an agent values her privacy, there will always …