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How Can Insurance Companies Compete With MutualInsurers? The Role of Commitment

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Author Info
Renaud Bourlès () (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579)

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Abstract

The aim of this paper is to analyze the impact of the existence of mutual firms on the behavior of insurance companies and more precisely to study in which situations an insurance company can enter a market controlled by mutual arrangements. Our approach differs from the existing literature as we integrate the investment choices of the insurance company and the fact that, because it commits on a fix contract, it can become insolvent. In such a situation we are able tocharacterize the unique optimal choices of the monopolistic company and the conditions favoringits appearance.

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Paper provided by HAL in its series Working Papers with number halshs-00410765_v1.

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Date of creation: 2006
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Handle: RePEc:hal:wpaper:halshs-00410765_v1

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Related research
Keywords: Insurance market; Mutual firms; Commitment; Insolvency;

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  1. Smith, Bruce D & Stutzer, Michael J, 1990. "Adverse Selection, Aggregate Uncertainty, and the Role for Mutual Insurance Contracts," Journal of Business, University of Chicago Press, vol. 63(4), pages 493-510, October. [Downloadable!] (restricted)
  2. Doherty, Neil A & Dionne, Georges, 1993. " Insurance with Undiversifiable Risk: Contract Structure and Organizational Form of Insurance Firms," Journal of Risk and Uncertainty, Springer, vol. 6(2), pages 187-203, April.
  3. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
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