From regulation to free market: the experience of the European motor insurance market
Increasing premiums, increasing claims and decreasing profits are three striking facts associated in some European countries to motor insurance liberalization of 1990's. In this paper, we argue that these phenomena may be considered not a consequence of collusion or other misapplications of deregulation but rather an effect of the impact of liberalization on the companies’ optimal choices. In particular, by extending the Salop-Economides model, we show that price deregulation involves decreasing investments in monitoring and increasing compensation costs. Therefore, the transition from regulation to competition can yield prices and profits moving in either direction and possibly opposite directions.
|Date of creation:||Mar 2004|
|Date of revision:|
|Contact details of provider:|| Postal: Piazzale Martelli, 8, 60121 Ancona|
Phone: +39 071 220 7100
Fax: +39 071 220 7102
Web page: http://www.dises.univpm.it/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bond, E.W. & Crocker, K.J., 1993.
"Hardball and the Soft Touch: The Economics of Optimal Insurance Contracts with Costly State Verification and Endogenous Monitoring Costs,"
10-93-1b, Pennsylvania State - Department of Economics.
- Bond, Eric W. & Crocker, Keith J., 1997. "Hardball and the soft touch: The economics of optimal insurance contracts with costly state verification and endogenous monitoring costs," Journal of Public Economics, Elsevier, vol. 63(2), pages 239-264, January.
- Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
- Picard, Pierre, 1996. "Auditing claims in the insurance market with fraud: The credibility issue," Journal of Public Economics, Elsevier, vol. 63(1), pages 27-56, December.
- Barros, Pedro P, 1996. "Competition Effects of Price Liberalization in Insurance," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 267-87, September.
- Michael Hoy, 1982. "Categorizing Risks in the Insurance Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 97(2), pages 321-336.
- Smith, Eric & Wright, Randall, 1992.
"Why Is Automobile Insurance in Philadelphia So Damn Expensive?,"
American Economic Review,
American Economic Association, vol. 82(4), pages 756-72, September.
- Eric Smith & Randall Wright, 1991. "Why is automobile insurance in Philadelphia so damn expensive?," Staff Report 139, Federal Reserve Bank of Minneapolis.
- Lacker, J.M., 1989.
"Optimal Contracts Under Costly State Falsification,"
Purdue University Economics Working Papers
956, Purdue University, Department of Economics.
- Lacker, Jeffrey M & Weinberg, John A, 1989. "Optimal Contracts under Costly State Falsification," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1345-63, December.
- Donatella Porrini, 2002. "Frodi nell'assicurazione RC Auto: analisi economica e possibili rimedi," Rivista di Politica Economica, SIPI Spa, vol. 92(2), pages 109-138, March-Apr.
- Donatella Porrini, 2004.
"Information Exchange as Collusive Behaviour: Evidence from an Antitrust Intervention in the Italian Insurance Market,"
The Geneva Papers on Risk and Insurance - Issues and Practice,
Palgrave Macmillan;The Geneva Association, vol. 29(2), pages 219-233, April.
- Donatella Porrini, 2004. "Information Exchange as Collusive Behaviour: Evidence from an Antitrust Intervention in the Italian Insurance Market," The Geneva Papers on Risk and Insurance, The International Association for the Study of Insurance Economics, vol. 29(2), pages 219-233, 04.
- Caron, L. & Dionne, G., 1996.
"Insurance Fraud Estimation: More Evidence from the Quebec Automobile Insurance Industry,"
Ecole des Hautes Etudes Commerciales de Montreal-
96-02, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
- L. Caron & G. Dionne, 1997. "Insurance fraud estimation : more evidence from the Quebec automobile insurance industry," THEMA Working Papers 97-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Michele Grillo, 2002. "Collusion and Facilitating Practices: A New Perspective in Antitrust Analysis," European Journal of Law and Economics, Springer, vol. 14(2), pages 151-169, September.
- Crocker, Keith J & Tennyson, Sharon, 2002. "Insurance Fraud and Optimal Claims Settlement Strategies," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 469-507, October.
- Novshek, William, 1980. "Equilibrium in simple spatial (or differentiated product) models," Journal of Economic Theory, Elsevier, vol. 22(2), pages 313-326, April.
- J. David Cummins & Sharon Tennyson, 1992. "Controlling Automobile Insurance Costs," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 95-115, Spring.
- Norman, George & Thisse, Jacques-Francois, 1996.
"Product Variety and Welfare under Tough and Soft Pricing Regimes,"
Royal Economic Society, vol. 106(434), pages 76-91, January.
- Norman, G. & Thisse, J.-F., . "Product variety and welfare under tough and soft pricing regimes," CORE Discussion Papers RP 1201, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
When requesting a correction, please mention this item's handle: RePEc:anc:wpaper:205. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maurizio Mariotti)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.