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Article: Resistance (to fraud) is futile.(insurance fraud prevention)
- Article from:
- Journal of Risk and Insurance
- Article date:
- June 1, 2007
- Author:
CopyrightCOPYRIGHT 2007 American Risk and Insurance Association, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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ABSTRACT
This article studies a static principal-agent model of insurance fraud using a costly state verification approach. In an economy where there are two types of agents, the Truths, who always report the true state of the world, and the Dares, who dare misreport the true state of the world, I show that no separating contract exists. Furthermore, if the proportion of Dares is large enough, then the pooling contract, the amount of fraud and the number of agents found to have committed fraud are independent of the Dares' exact proportion in the economy. Finally, I show that investment in prevention can be useless if the proportion of Dares is large enough, ...