Cost Function Estimation and Quality Bias: The Regulated Automobile Insurance Industry
AbstractThis article explores the implications of endogenous product quality (and therefore endogenous output) in the empirical estimation of cost functions for regulated automobile collision insurance firms. It contains a structural model of such a firm and provides an illustration of the types of biases that can result if data on quality of service are unavailable or otherwise omitted. The analysis shows how the directions of biases depend on the nature of the variations in the observed (nonquality) data. A new test suggests that such bias is present in insurance cost functions.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 17 (1986)
Issue (Month): 4 (Winter)
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Web page: http://www.rje.org
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- Allen N. Berger & J. David Cummins & Mary A. Weiss, 1995.
"The coexistence of multiple distribution systems for financial services: the case of property-liability insurance,"
Finance and Economics Discussion Series
95-22, Board of Governors of the Federal Reserve System (U.S.).
- Berger, Allen N & Cummins, J David & Weiss, Mary A, 1997. "The Coexistence of Multiple Distribution Systems for Financial Services: The Case of Property-Liability Insurance," The Journal of Business, University of Chicago Press, vol. 70(4), pages 515-46, October.
- Allen N. Berger & J. David Cummins & Mary A. Weiss, 1995. "The Coexistence of Multiple Distributions Systems for Financial Services: The Case of Property-Liability Insurance," Center for Financial Institutions Working Papers 95-13, Wharton School Center for Financial Institutions, University of Pennsylvania.
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