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Audit Competition in Insurance Oligopolies

Author

Listed:
  • Nicolas Boccard

    (Economics Department, Universitat de Girona, Girona 17071, Spain)

  • Patrick Legros

    (Economics Department, Northeastern University, Boston, MA 02115, USA; Universite Libre de Bruxelles (ECARES))

Abstract

We provide a simple framework for analyzing how competition affects the choice of audit structures in an oligopolistic insurance industry. When the degree of competition increases, fraud increases but the response of the industry in terms of investment in audit quality follows a U-shaped pattern. Following increases in competition, the investment in audit quality will decrease if the industry is initially in a low competition regime while it will increase when the industry is in a high competition regime. We show that firms will benefit from forming a joint audit agency only when the degree of competition is intermediate; in this case, cooperation might improve total welfare and we analyze the effects of contract innovation on the performance of the industry.

Suggested Citation

  • Nicolas Boccard & Patrick Legros, 2017. "Audit Competition in Insurance Oligopolies," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 12(3), pages 371-399, September.
    • Handle: RePEc:fec:journl:v:12:y:2017:i:3:p:371-399
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0016-1
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    Cited by:

    1. is not listed on IDEAS
    2. Bénédicte Coestier & Nathalie Fombaron, 2003. "L'audit en assurance," Thema Working Papers 2003-41, THEMA (Théorie Economique, Modélisation et Applications), CY Cergy-Paris University, ESSEC and CNRS.

    More about this item

    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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