2003 Mehr Award
The American Risk and Insurance Association presents the Robert I. Mehr Award
each year for that paper published ten years ago that has best stood the test of
time.
There was a tie for the award in 2003. The first recipients of the
2003 Mehr Award were J. David Cummins and Mary A. Weiss for "The
Stochastic Dominance of No-Fault Automobile Insurance" The Journal
of Risk and Insurance, Vol. 60, No. 2. (Jun., 1993), pp. 230-264
Abstract
This article presents a rigorous analysis of no-fault automobile insurance in
terms of stochastic dominance theory. In (he baseline case, with identical
drivers and actuarially fair insurance, no-fault is stochastically dominant as
long as the no-fault insurance premium exceeds the ton premium. In this case,
no-fault brings a higher proportion of accident costs under insurance,
increasing driver welfare. When expense charges are introduced (actuarially
unfair insurance) no-fault may still be stochastically dominant if the expense
charge is less under no-fault, even if no-fault weakens incentives for good
driving and leads to higher accident rates. Elective no-fault is unlikely to
reduce auto insurance costs, because drivers with high propensities toward moral
hazard are likely to retain their right to sue by choosing ton.
The second recipients for the 2003 Mehr award were James R. Garven and
Richard D. MacMinn for "The
Underinvestment Problem, Bond Covenants, and Insurance" The Journal
of Risk and Insurance, Vol. 60, No. 4. (Dec., 1993), pp. 635-646
Abstract
This article complements earlier work by Mayers and Smith (1987) and
Schnabel and Roumi (1989), which showed that a property insurance contract could
be used to bond subsequent corporate investment decisions. Although these models
suggest one possible approach to solving the underinvestment problem, neither
model explicitly specifies the economic mechanisms required to guarantee that
current shareholders receive the maximum possible benefits from solving this
problem. We propose a financing-constrained model that not only eliminates
underinvestment but also ensures that current shareholders capture the entire
agency cost (net of loading) as an increase in value.
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