IDEAS home Printed from https://ideas.repec.org/a/bpj/apjrin/v12y2018i2p15n1.html
   My bibliography  Save this article

Optimization of Price, Default Ratio and Capital under Regulatory Criterion of Maximizing Social Benefit

Author

Listed:
  • Mao Hong

    (Shanghai Second Polytechnic University, Shanghai, China)

  • Wen Zhongkai

    (The University of Illinois at Chicago, Chicago, United States of America)

Abstract

In this paper, we explore the optimal price, default ratio, and capital for insurance companies under social welfare maximization from regulators' perspective. From comparisons of cases under symmetric and asymmetric information in the insurance market, we find that an optimal regulatory objective should be set to maximize social benefit and induce fair benefit distribution in a transparent insurance market, and direct regulation on capital constraint can increase insurance demand and shareholders' benefits in a non-transparent market.

Suggested Citation

  • Mao Hong & Wen Zhongkai, 2018. "Optimization of Price, Default Ratio and Capital under Regulatory Criterion of Maximizing Social Benefit," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 12(2), pages 1-15, July.
    • Handle: RePEc:bpj:apjrin:v:12:y:2018:i:2:p:15:n:1
    DOI: 10.1515/apjri-2017-0008
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/apjri-2017-0008
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/apjri-2017-0008?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hong Mao & Krzysztof M. Ostaszewski, 2007. "Application of Game Theory to Pricing of Participating Deferred Annuity," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 30(2), pages 102-121.
    2. Rustam Ibragimov & Dwight Jaffee & Johan Walden, 2010. "Pricing and Capital Allocation for Multiline Insurance Firms," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(3), pages 551-578, September.
    3. Dasgupta, Sudipto & Nanda, Vikram, 1993. "Bargaining and brinkmanship : Capital structure choice by regulated firms," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 475-497.
    4. George Zanjani, 2010. "An Economic Approach to Capital Allocation," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(3), pages 523-549, September.
    5. Chen, An & Suchanecki, Michael, 2007. "Default risk, bankruptcy procedures and the market value of life insurance liabilities," Insurance: Mathematics and Economics, Elsevier, vol. 40(2), pages 231-255, March.
    6. Rachel J. Huang & Larry Y. Tzeng, 2007. "Optimal Tax Deductions for Net Losses Under Private Insurance With an Upper Limit," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(4), pages 883-893, December.
    7. Zimmer, Anja & Schade, Christian & Gründl, Helmut, 2009. "Is default risk acceptable when purchasing insurance? Experimental evidence for different probability representations, reasons for default, and framings," Journal of Economic Psychology, Elsevier, vol. 30(1), pages 11-23, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dionne, Georges & Harrington, Scott, 2017. "Insurance and Insurance Markets," Working Papers 17-2, HEC Montreal, Canada Research Chair in Risk Management.
    2. Daniel Bauer & George Zanjani, 2016. "The Marginal Cost of Risk, Risk Measures, and Capital Allocation," Management Science, INFORMS, vol. 62(5), pages 1431-1457, May.
    3. Stoyanova, Rayna & Schlütter, Sebastian, 2012. "Safety versus affordability as targets of insurance regulation in an opaque market: A welfare approach," ICIR Working Paper Series 10/12, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    4. Carlo Cambini & Yossi Spiegel, 2016. "Investment and Capital Structure of Partially Private Regulated Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 487-515, April.
    5. Pierre M. Picard & Ridwan D. Rusli, 2018. "State‐owned firms and private debt," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(5), pages 672-702, October.
    6. Clive J Stones, "undated". "Risk Sharing, the Cost of Equity and the Optimal Capital Structure of the Regulated Firm," Discussion Papers 05/31, Department of Economics, University of York.
    7. Chang Shih-Chieh Bill & Lee Yen-Kuan, 2020. "Currency Uncertainty, Interest Guarantee, and Risk-Based Premiums in Life Insurance Guaranty Schemes," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 14(2), pages 1-30, July.
    8. Fay, Marianne & Martimort, David & Straub, Stéphane, 2021. "Funding and financing infrastructure: The joint-use of public and private finance," Journal of Development Economics, Elsevier, vol. 150(C).
    9. Ehrhardt, David & Irwin Timothy, 2004. "Avoiding customer and taxpayer bailouts in private infrastructure projects : Policy toward leverage, risk allocation, and bankruptcy," Policy Research Working Paper Series 3274, The World Bank.
    10. Maathumai Nirmalendran & Michael Sherris & Katja Hanewald, 2012. "Solvency Capital, Pricing and Capitalization Strategies of Life Annuity Providers," Working Papers 201213, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
    11. Véronique Maume-Deschamps & Didier Rullière & Khalil Said, 2014. "On capital allocation by minimizing multivariate risk indicators," Working Papers hal-01082559, HAL.
    12. Cheng, Chunli & Li, Jing, 2018. "Early default risk and surrender risk: Impacts on participating life insurance policies," Insurance: Mathematics and Economics, Elsevier, vol. 78(C), pages 30-43.
    13. Fraja, Gianni De & Piga, Claudio A. G., 2004. "Strategic debt in vertical relationships: theory and evidence," Research in Economics, Elsevier, vol. 58(2), pages 103-123, June.
    14. Olivier Debande, 1997. "Le rôle du secteur privé dans le financement des infrastructures : une mise en perspective historique," Revue Économique, Programme National Persée, vol. 48(2), pages 197-230.
    15. Boonen, Tim J., 2019. "Equilibrium recoveries in insurance markets with limited liability," Journal of Mathematical Economics, Elsevier, vol. 85(C), pages 38-45.
    16. Strauss, Jason, 2007. "Price Regulation, Market Exit, and Financial Leverage of Canadian Property-Liability Insurers," MPRA Paper 11212, University Library of Munich, Germany, revised 28 Oct 2008.
    17. Li, Xin & Liu, Haibo & Tang, Qihe & Zhu, Jinxia, 2020. "Liquidation risk in insurance under contemporary regulatory frameworks," Insurance: Mathematics and Economics, Elsevier, vol. 93(C), pages 36-49.
    18. Anna Rita Bacinello & An Chen & Thorsten Sehner & Pietro Millossovich, 2021. "On the Market-Consistent Valuation of Participating Life Insurance Heterogeneous Contracts under Longevity Risk," Risks, MDPI, vol. 9(1), pages 1-18, January.
    19. Yossef Spiegel, 1996. "The Role of Debt in Procurement Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(3), pages 379-407, September.
    20. Shi Chen & Jyh-Horng Lin & Wenyu Yao & Fu-Wei Huang, 2019. "CEO Overconfidence and Shadow-Banking Life Insurer Performance Under Government Purchases of Distressed Assets," Risks, MDPI, vol. 7(1), pages 1-25, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:apjrin:v:12:y:2018:i:2:p:15:n:1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.