Quality, self-regulation, and competition: the case of insurance
(2003) In Insurance: Mathematics and Economics 32(2). p.267-280- Abstract
- 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... (More)
- 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. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/312760
- author
- Andersson, Fredrik LU and Skogh, Göran
- organization
- publishing date
- 2003
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- generosity, competition, credibility externalities, self-regulation
- in
- Insurance: Mathematics and Economics
- volume
- 32
- issue
- 2
- pages
- 267 - 280
- publisher
- Elsevier
- external identifiers
-
- wos:000182467900006
- scopus:0037461989
- ISSN
- 1873-5959
- DOI
- 10.1016/S0167-6687(03)00111-2
- language
- English
- LU publication?
- yes
- id
- a5024e45-91df-4959-9a15-436171d85f92 (old id 312760)
- date added to LUP
- 2016-04-01 11:51:05
- date last changed
- 2022-01-26 19:09:08
@article{a5024e45-91df-4959-9a15-436171d85f92,
abstract = {{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.}},
author = {{Andersson, Fredrik and Skogh, Göran}},
issn = {{1873-5959}},
keywords = {{generosity; competition; credibility externalities; self-regulation}},
language = {{eng}},
number = {{2}},
pages = {{267--280}},
publisher = {{Elsevier}},
series = {{Insurance: Mathematics and Economics}},
title = {{Quality, self-regulation, and competition: the case of insurance}},
url = {{http://dx.doi.org/10.1016/S0167-6687(03)00111-2}},
doi = {{10.1016/S0167-6687(03)00111-2}},
volume = {{32}},
year = {{2003}},
}