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A theoretic analysis of key person insurance

Author

Listed:
  • Nie, Pu-yan
  • Wang, Chan
  • Chen, Zi-yue
  • Chen, You-hua

Abstract

As the death or a major accident of a key person will bring a firm with disastrous losses, key person insurance has attracted increasing attention worldwide. But key person insurance is a double-edged sword because it has both positive and negative effects on a firm's performance. Different from prior papers, this study proposes to capture the two opposite effects of key person insurance by using a microeconomic analysis. The novel contribution of this paper is that besides risk-reducing effects of key person insurance, we find that key person insurance reduces the salaries of employees, output and excepted profit of the firm. More importantly, we illustrate that strong ability of the key person will promote the efficiency of employees. So this paper offers a full evaluation of firms' purchase behavior of key person insurance and also develops the theory of key person insurance.

Suggested Citation

  • Nie, Pu-yan & Wang, Chan & Chen, Zi-yue & Chen, You-hua, 2018. "A theoretic analysis of key person insurance," Economic Modelling, Elsevier, vol. 71(C), pages 272-278.
    • Handle: RePEc:eee:ecmode:v:71:y:2018:i:c:p:272-278
    DOI: 10.1016/j.econmod.2017.12.020
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    References listed on IDEAS

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    Cited by:

    1. Chan Wang & Pu‐yan Nie, 2020. "Retail competition using free shopping shuttle bus strategies," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(6), pages 1010-1019, September.
    2. Nie, Pu-yan & Wang, Chan & Wen, Hong-xing, 2021. "Horizontal mergers under uniform resource constraints," Journal of Retailing and Consumer Services, Elsevier, vol. 63(C).
    3. Nie, Pu-yan & Wang, Chan & Yang, Yong-cong, 2019. "Vertical integration maintenance commitments," Journal of Retailing and Consumer Services, Elsevier, vol. 47(C), pages 11-16.
    4. Chan Wang & Pu‐yan Nie & Yan Meng, 2018. "Duopoly Competition with Corporate Social Responsibility," Australian Economic Papers, Wiley Blackwell, vol. 57(3), pages 327-345, September.
    5. Pu‐Yan Nie & Xu Xiao & Chan Wang & Ting Cui, 2020. "Innovation subsidy under duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(3), pages 362-370, April.
    6. Oytun Haçarız & Torsten Kleinow & Angus S. Macdonald & Pradip Tapadar & R. Guy Thomas, 2020. "Will genetic test results be monetized in life insurance?," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 23(4), pages 379-399, December.

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    More about this item

    Keywords

    Key person insurance; Employees; Risk;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income

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