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Effort Allocation of Insurance Agent under Asymmetric Information: An Analytical Approach

Listed author(s):
  • Kojima Koji

    (Kwansei Gakuin University, Japan)

  • Okura Mahito

    (Nagasaki University, Japan)

This study examines the relationship between incentive contracts for managers and the allocation of efforts by the managers as well as the stock markets role in monitoring allocation of the efforts. It also evaluates solvency regulation in Japan and its effects on the compensation of a manager and allocation of the managers efforts and on the shareholders profits in a market with asymmetric information. Particularly, we employ a principal-agency model to demonstrate how uncertainty in the insurance market affects the way managers allocate their efforts so that their companies can achieve a higher solvency ratio in order to meet not only regulatory requirements but also stock market expectation. We find presence of a solvency margin ratio that, subject to certain conditions, increases the level of good effort, decreases the level of bad effort by the manager and increases the expected stock price.

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Article provided by De Gruyter in its journal Asia-Pacific Journal of Risk and Insurance.

Volume (Year): 2 (2008)
Issue (Month): 2 (March)
Pages: 1-20

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Handle: RePEc:bpj:apjrin:v:2:y:2008:i:2:n:6
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  1. Ballotta, Laura & Esposito, Giorgia & Haberman, Steven, 2006. "The IASB Insurance Project for life insurance contracts: Impact on reserving methods and solvency requirements," Insurance: Mathematics and Economics, Elsevier, vol. 39(3), pages 356-375, December.
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