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

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  • Bernstein, Jeffrey I

Abstract

A model of the production of life insurance services is developed. 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. Unit revenue-cost margins average from 13 percent to 40 percent across lines of insurance. 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 from offering multiple insurance lines average from 70 percent to 100 percent. Copyright 1992 by The editors of the Scandinavian Journal of Economics.

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  • Bernstein, Jeffrey I, 1992. " Information Spillovers, Margins, Scale and Scope: With an Application to Canadian Life Insurance," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages 95-105, Supplemen.
  • Handle: RePEc:bla:scandj:v:94:y:1992:i:0:p:s95-105
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    1. 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, vol. 25(2), pages 357-367, June.
    2. Crocker, Keith J & Snow, Arthur, 1986. "The Efficiency Effects of Categorical Discrimination in the Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 321-344, April.
    3. Cooper, Russell & Hayes, Beth, 1987. "Multi-period insurance contracts," International Journal of Industrial Organization, Elsevier, vol. 5(2), pages 211-231.
    4. Diewert, W.E., 1993. "Duality approaches to microeconomic theory," Handbook of Mathematical Economics,in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 12, pages 535-599 Elsevier.
    5. Randall Geehan, 1977. "Returns to Scale in the Life Insurance Industry," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 497-514, Autumn.
    6. Spence, Michael, 1978. "Product differentiation and performance in insurance markets," Journal of Public Economics, Elsevier, vol. 10(3), pages 427-447, December.
    7. 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.
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    Cited by:

    1. 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 074, School of Economics and Finance, Queensland University of Technology.
    2. Jeffrey I. Bernstein, 1999. "Total factor productivity growth in the Canadian life insurance industry: 1979-1989," Canadian Journal of Economics, Canadian Economics Association, vol. 32(2), pages 500-517, April.
    3. Fukuyama, Hirofumi, 1997. "Investigating productive efficiency and productivity changes of Japanese life insurance companies," Pacific-Basin Finance Journal, Elsevier, vol. 5(4), pages 481-509, September.

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