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Quality, self-regulation, and competition: the case of insurance

In English

Författare

Summary, in English

In this paper, insurers' credibility problems explain contracting, co-operation, and regulation in the insurance industry. First, it is noted that cheating by policyholders may be eliminated if the insurer withholds compensation on the basis of detecting careless behaviour with high enough probability. Then, assuming that care taken is imperfectly observable and non-contractible, the problem that insurers may deceive policyholders is addressed. In a repeated game, insurers' building a reputation for being generous can sustain an efficient outcome. Finally, intra-industry co-operation is considered; it is shown that the industry's monitoring care and "fair" compensation, while sustaining monopolistic pricing, mitigates negative credibility externalities. (C) 2003 Elsevier Science B.V. All rights reserved.

Publiceringsår

2003

Språk

Engelska

Sidor

267-280

Publikation/Tidskrift/Serie

Insurance: Mathematics and Economics

Volym

32

Issue

2

Dokumenttyp

Artikel i tidskrift

Förlag

Elsevier

Ämne

  • Economics

Nyckelord

  • generosity
  • competition
  • credibility externalities
  • self-regulation

Status

Published

ISBN/ISSN/Övrigt

  • ISSN: 1873-5959