Quality, self-regulation, and competition: the case of insurance
Author
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.
Department/s
Publishing year
2003
Language
English
Pages
267-280
Publication/Series
Insurance: Mathematics and Economics
Volume
32
Issue
2
Document type
Journal article
Publisher
Elsevier
Topic
- Economics
Keywords
- generosity
- competition
- credibility externalities
- self-regulation
Status
Published
ISBN/ISSN/Other
- ISSN: 1873-5959