The Role of Memory in Long-Term Contracting with Moral Hazard: Empirical Evidence in Automobile Insurance.

This paper tests the efficiency associated with the role of memory in long-term contracting. Bonus-malus schemes in automobile insurance are examples of contracts that use memory. During the eighties different contributors (Lambert, 1983, Rogerson, 1985, Boyer, and Dionne, 1989) showed how multi-period contracting under moral hazard improves resource allocation. In particular, it was demonstrated that multi-period contracts with memory outperform those without memory under full commitment.