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Information Spillovers, Margins, Scale and Scope: With an Application to Canadian Life Insurance

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Author Info
Bernstein, Jeffrey I

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Abstract

A model of the production of life insurance services is developed. The focus is on price setting ability and the cost advantages from size and diversity. The model characterizes insurers decisions on the face value and number of policies and the number of insurance lines. The model is applied to Canadian life insurance firms. Unit revenue-cost margins average from 13 percent to 40 percent across lines of insurance. These margins emanate from information spillovers generated by marketing activities. Cost advantages due to size are small, but are substantial from diversity. Returns to scale average from 1.13 to 1.40, while returns to scope from offering multiple insurance lines average from 70 percent to 100 percent. Copyright 1992 by The editors of the Scandinavian Journal of Economics.

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Publisher Info
Article provided by Blackwell Publishing in its journal Scandinavian Journal of Economics.

Volume (Year): 94 (1992)
Issue (Month): 0 (Supplement)
Pages: S95-105
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Handle: RePEc:bla:scandj:v:94:y:1992:i:0:p:s95-105

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. William B. Fairley, 1979. "Investment Income and Profit Margins in Property-Liability Insurance: Theory and Empirical Results," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 192-210, Spring. [Downloadable!] (restricted)
  2. Crocker, Keith J & Snow, Arthur, 1986. "The Efficiency Effects of Categorical Discrimination in the Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 321-44, April. [Downloadable!] (restricted)
  3. Dionne, Georges, 1984. "Search and Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 357-67, June. [Downloadable!] (restricted)
    Other versions:
  4. Randall Geehan, 1977. "Returns to Scale in the Life Insurance Industry," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 497-514, Autumn. [Downloadable!] (restricted)
  5. Cooper, Russell & Hayes, Beth, 1987. "Multi-period insurance contracts," International Journal of Industrial Organization, Elsevier, vol. 5(2), pages 211-231. [Downloadable!] (restricted)
  6. Spence, Michael, 1978. "Product differentiation and performance in insurance markets," Journal of Public Economics, Elsevier, vol. 10(3), pages 427-447, December. [Downloadable!] (restricted)
  7. Mayers, David & Smith, Clifford W, Jr, 1990. "On the Corporate Demand for Insurance: Evidence from the Reinsurance Market," Journal of Business, University of Chicago Press, vol. 63(1), pages 19-40, January. [Downloadable!] (restricted)
  8. Paul L. Joskow, 1973. "Cartels, Competition and Regulation in the Property-Liability Insurance Industry," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 375-427, Autumn. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andrew C. Worthington & Emily V. Hurley, 2000. "Technical, allocative and cost efficiency in the Australian general insurance industry," School of Economics and Finance Discussion Papers and Working Papers Series 074, School of Economics and Finance, Queensland University of Technology. [Downloadable!]
  2. Jeffrey I. Bernstein, 1998. "Total Factor Productivity Growth in the Canadian Life Insurance Industry: 1979-1989," NBER Working Papers 6475, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Paul Clyde & James Reitzes, 2004. "Can Mergers to Monopoly, Price Fixing, and Market-Division Agreements Raise Welfare?," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 11(1), pages 69-90, February. [Downloadable!] (restricted)
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This page was last updated on 2009-11-22.

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