Neil A. Doherty () (The Wharton School, University of Pennsylvania) Alexander Muermann () (The Wharton School, University of Pennsylvania)
Abstract
How do markets spread risk when events are unknown or unknowable and where not anticipated in an insurance contract? While the policyholder can "hold up" the insurer for extra contractual payments, the continuing gains from trade on a single contract are often too small to yield useful coverage. By acting as a repository of the reputations of the parties, we show the brokers provide a coordinating mechanism to leverage the collective hold up power of policyholders. This extends both the degree of implicit and explicit coverage. The role is reflected in the terms of broker engagement, specifically in the ownership by the broker of the renewal rights. Finally, we argue that brokers can be motivated to play this role when they receive commissions that are contingent on insurer profits. This last feature questions a recent, well publicized, attack on broker compensation by New York attorney general, Elliot Spitzer.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Center for Financial Studies in its series CFS Working Paper Series with number
2005/24.
Length: 25 pages Date of creation: 24 Jan 2005 Date of revision: Handle: RePEc:cfs:cfswop:wp200524
Contact details of provider: Postal: House of Finance, Gr�neburgplatz 1, HPF H5, D-60323 Frankfurt am Main Phone: +49 (0)69 798-30050 Fax: +49 (0)69 798-30077 Email: Web page: http://www.ifk-cfs.de/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Birgit Pässler).
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.: