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Quality, self-regulation, and competition: The case of insurance
Linköping University, Faculty of Arts and Sciences. Linköping University, Department of Management and Engineering, Economics .
2003 (English)In: Insurance, Mathematics & Economics, ISSN 0167-6687, Vol. 32, no 2, 267-280 p.Article in journal (Refereed) Published
Abstract [en]

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. ⌐ 2003 Elsevier Science B.V. All rights reserved.

Place, publisher, year, edition, pages
2003. Vol. 32, no 2, 267-280 p.
National Category
Engineering and Technology
URN: urn:nbn:se:liu:diva-43413DOI: 10.1016/S0167-6687(03)00111-2Local ID: 73772OAI: diva2:264272
Available from: 2009-10-10 Created: 2009-10-10 Last updated: 2011-01-13

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