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On the Emergence of Private Insurance in Presence of Mutual Agreements

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  • Bourlès, Renaud

Abstract

The aim of this paper is to analyze the impact of the existence of mutual firms on the behavior of an insurance company and more precisely to study in which situations a private insurance firm may emerge in presence of an incumbent mutual firm. Our approach differs from the existing literature as we integrate the investment choices of the company and the fact that, because it commits on a fix contract, it can become insolvent. In such a situation we are able to characterize the unique optimal choices of an entrant company and the conditions favoring or preventing its appearance.

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File URL: http://mpra.ub.uni-muenchen.de/5821/
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File URL: http://mpra.ub.uni-muenchen.de/5827/
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File URL: http://mpra.ub.uni-muenchen.de/15374/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5821.

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Date of creation: 29 Jun 2007
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Handle: RePEc:pra:mprapa:5821

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

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  1. Lena Nekby, 2004. "Pure Versus Mutual Health Insurance: Evidence From Swedish Historical Data," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(1), pages 115-134.
  2. Raj Chetty, 2006. "A Bound on Risk Aversion Using Labor Supply Elasticities," NBER Working Papers 12067, National Bureau of Economic Research, Inc.
  3. Smith, Bruce D & Stutzer, Michael J, 1990. "Adverse Selection, Aggregate Uncertainty, and the Role for Mutual Insurance Contracts," The Journal of Business, University of Chicago Press, vol. 63(4), pages 493-510, October.
  4. 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.
  5. David Mayers & Clifford Smith, 2002. "Ownership Structure and Control: Property-Casualty Insurer Conversion to Stock Charter," Journal of Financial Services Research, Springer, vol. 21(1), pages 117-144, February.
  6. Garance Genicot & Debraj Ray, 2003. "Group Formation in Risk-Sharing Arrangements," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 87-113.
  7. Laux, Christian & Muermann, Alexander, 2006. "Mutual versus stock insurers: Fair premium, capital, and solvency," CFS Working Paper Series 2006/26, Center for Financial Studies (CFS).
  8. Lamm-Tennant, Joan & Starks, Laura T, 1993. "Stock versus Mutual Ownership Structures: The Risk Implications," The Journal of Business, University of Chicago Press, vol. 66(1), pages 29-46, January.
  9. Hansmann, Henry, 1985. "The Organization of Insurance Companies: Mutual versus Stock," Journal of Law, Economics and Organization, Oxford University Press, vol. 1(1), pages 125-53, Spring.
  10. 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.
  11. Ray Rees & Hugh Gravelle & Achim Wambach, 1999. "Regulation of Insurance Markets," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 24(1), pages 55-68, June.
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