From regulation to free market: the experience of the European motor insurance market
AbstractIncreasing premiums, increasing claims and decreasing profits are three striking facts associated in some European countries to motor insurance liberalization of 1990's. In this paper, we argue that these phenomena may be considered not a consequence of collusion or other misapplications of deregulation but rather an effect of the impact of liberalization on the companies’ optimal choices. In particular, by extending the Salop-Economides model, we show that price deregulation involves decreasing investments in monitoring and increasing compensation costs. Therefore, the transition from regulation to competition can yield prices and profits moving in either direction and possibly opposite directions.
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Bibliographic InfoPaper provided by Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali in its series Working Papers with number 205.
Date of creation: Mar 2004
Date of revision:
motor insurance; regulation; spatial models;
Find related papers by JEL classification:
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-COM-2006-01-24 (Industrial Competition)
- NEP-FIN-2006-01-24 (Finance)
- NEP-IAS-2006-01-24 (Insurance Economics)
- NEP-IND-2006-01-24 (Industrial Organization)
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