The Economics of the Quake-Data Falsification Scandal

Abstract

We examined what kind of system is necessary to solve the problems caused by asymmetric information between consumers and builders of condominiums. Under the hidden information that the house builders and designers take an action unobserved by the consumers, they have an incentive to produce the buildings of lower quality such as less performance on earthquake-proof.
We propose to introduce the building quality registration system which provides for important information about whether the authorized inspectors for buildings have checked the involved building and about the flexible premium applied by the insurance company.The higher premium implies the higher risk of falsification about the quake-data and the builder's hidden action of making the less quality products.
The registration system enables consumers to know the quality of the involved building. The flexible premium rate of insurance can protect more efficiently the consumers from flaws of the buildings than the fixed premium that causes a serious moral hazard.