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Information Spillovers, Margins, Scale and Scope: With an Application to Canadian Life Insurance

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  • Jeffrey I. Bernstein

Abstract

This paper develops a model of the production of life insurance services. The focus is on price setting ability and the cost advantages from size and diversity. The model characterizes insurers decisions on the face value and number of policies and the number of insurance lines. The model is applied to Canadian life insurance firms. Price-cost margins average from 13% to 40%. These margins emanate from information spillovers generated by marketing activities. Cost advantages due to size are small, but are substantial from diversity. Returns to scale average from 1.13 to 1.40, while returns to scope average from 70% to 100%.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3979.

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Date of creation: Jan 1992
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Publication status: published as The Scandinavian Journal of Economics, Vol. 94, 1992 Supplement, pp. 95-105(1992).
Handle: RePEc:nbr:nberwo:3979

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  1. Cooper, Russell & Hayes, Beth, 1987. "Multi-period insurance contracts," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 5(2), pages 211-231.
  2. Diewert, W.E., 1993. "Duality approaches to microeconomic theory," Handbook of Mathematical Economics, Elsevier, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 12, pages 535-599 Elsevier.
  3. Dionne, Georges, 1984. "Search and Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 357-67, June.
  4. Spence, Michael, 1978. "Product differentiation and performance in insurance markets," Journal of Public Economics, Elsevier, Elsevier, vol. 10(3), pages 427-447, December.
  5. Mayers, David & Smith, Clifford W, Jr, 1990. "On the Corporate Demand for Insurance: Evidence from the Reinsurance Market," The Journal of Business, University of Chicago Press, vol. 63(1), pages 19-40, January.
  6. Randall Geehan, 1977. "Returns to Scale in the Life Insurance Industry," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 8(2), pages 497-514, Autumn.
  7. Crocker, Keith J & Snow, Arthur, 1986. "The Efficiency Effects of Categorical Discrimination in the Insurance Industry," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(2), pages 321-44, April.
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Cited by:
  1. Fukuyama, Hirofumi, 1997. "Investigating productive efficiency and productivity changes of Japanese life insurance companies," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 5(4), pages 481-509, September.
  2. Jeffrey I. Bernstein, 1999. "Total factor productivity growth in the Canadian life insurance industry: 1979-1989," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 32(2), pages 500-517, April.
  3. Andrew C. Worthington & Emily V. Hurley, 2000. "Technical, allocative and cost efficiency in the Australian general insurance industry," School of Economics and Finance Discussion Papers and Working Papers Series, School of Economics and Finance, Queensland University of Technology 074, School of Economics and Finance, Queensland University of Technology.

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