The Formation of Mutual Insurers in Markets with Adverse Selection
AbstractThe size distribution of mutual property-liability insurers has a larger proportion of relatively small companies than the size distribution of stock property-liability insurers. Small mutuals are unlikely to offer risk-sharing advantages over conventional insurance, so these firms must offer their members other advantages. This article develops a theoretical model showing that these mutuals may offer advantages over conventional insurance in addressing problems of adverse selection. When adverse selection exists, conventional insurers may coexist with small mutuals. Small mutuals may be strictly preferred by low-risk individuals. The size of the mutuals is limited by asymmetric information problems.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 78 (2005)
Issue (Month): 2 (March)
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Web page: http://www.journals.uchicago.edu/JB/
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