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Raymond Kluender Send correspondence to Raymond Kluender, rkluender@hbs.edu. Search for other works by this author on: Oxford Academic
The Review of Financial Studies, Volume 37, Issue 4, April 2024, Pages 1118–1148, https://doi.org/10.1093/rfs/hhad080
Published:
19 October 2023
Article history
Received:
12 December 2022
Editorial decision:
16 July 2023
Published:
19 October 2023
Corrected and typeset:
27 October 2023
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Raymond Kluender, Pay-As-You-Go Insurance: Experimental Evidence on Consumer Demand and Behavior, The Review of Financial Studies, Volume 37, Issue 4, April 2024, Pages 1118–1148, https://doi.org/10.1093/rfs/hhad080
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Abstract
Pay-as-you-go contracts reduce minimum purchase requirements, which may increase market participation. This paper randomizes the introduction and price(s) of a novel pay-as-you-go contract to the California auto insurance market, where 17% of drivers are uninsured. The pay-as-you-go contract increases take-up by 10.8 p.p. (89%) and days with coverage by 4.6 days over the 3-month experiment (27%). Demand is relatively inelastic, and pay-as-you-go increases insurance coverage in part by relaxing liquidity requirements: most drivers’ purchasing behavior is consistent with a cost of credit in excess of payday lending rates, and 19% of drivers have a purchase rejected for insufficient funds.
© The Author(s) 2023. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com.
This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/pages/standard-publication-reuse-rights)
JEL
D14 - Household Saving; Personal Finance G22 - Insurance; Insurance Companies; Actuarial Studies G52 - Insurance R41 - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
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Editor: Ralph Koijen
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