Quantifying the Premium Externality of the Uninsured

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

5 Scopus Citations
View graph of relations



Original languageEnglish
Pages (from-to)405-437
Journal / PublicationJournal of the European Economic Association
Issue number2
Online published22 Aug 2015
Publication statusPublished - 1 Apr 2016
Externally publishedYes


In insurance markets, the uninsured can generate a negative externality on the insured, leading insurance companies to charge higher premia. Using a novel panel data set and a staggered policy change that introduces exogenous variation in the rate of uninsured drivers at the county level in California, we find that uninsured drivers lead to higher insurance premia: a 1 percentage point increase in the rate of uninsured drivers raises premia by roughly 1%. We calculate the monetary fine on the uninsured that would fully internalize the externality and conclude that actual fines in most US states are inefficiently low.