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How Can Insurance Companies Compete With MutualInsurers? The Role of Commitment

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  • Renaud Bourlès

    () (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique - ECM - Ecole Centrale de Marseille)

Abstract

The aim of this paper is to analyze the impact of the existence of mutual firms on the behavior of insurance companies and more precisely to study in which situations an insurance company can enter a market controlled by mutual arrangements. Our approach differs from the existing literature as we integrate the investment choices of the insurance company and the fact that, because it commits on a fix contract, it can become insolvent. In such a situation we are able tocharacterize the unique optimal choices of the monopolistic company and the conditions favoringits appearance.

Suggested Citation

  • Renaud Bourlès, 2006. "How Can Insurance Companies Compete With MutualInsurers? The Role of Commitment," Working Papers halshs-00410765, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00410765 Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00410765
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    References listed on IDEAS

    as
    1. Smith, Bruce D & Stutzer, Michael J, 1990. "Adverse Selection, Aggregate Uncertainty, and the Role for Mutual Insurance Contracts," The Journal of Business, University of Chicago Press, vol. 63(4), pages 493-510, October.
    2. Ray Rees & Hugh Gravelle & Achim Wambach, 1999. "Regulation of Insurance Markets," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 24(1), pages 55-68, June.
    3. Raj Chetty, 2006. "A Bound on Risk Aversion Using Labor Supply Elasticities," NBER Working Papers 12067, National Bureau of Economic Research, Inc.
    4. Lena Nekby, 2004. "Pure Versus Mutual Health Insurance: Evidence From Swedish Historical Data," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(1), pages 115-134.
    5. Lamm-Tennant, Joan & Starks, Laura T, 1993. "Stock versus Mutual Ownership Structures: The Risk Implications," The Journal of Business, University of Chicago Press, vol. 66(1), pages 29-46, January.
    6. Doherty, Neil A & Dionne, Georges, 1993. "Insurance with Undiversifiable Risk: Contract Structure and Organizational Form of Insurance Firms," Journal of Risk and Uncertainty, Springer, vol. 6(2), pages 187-203, April.
    7. Garance Genicot & Debraj Ray, 2003. "Group Formation in Risk-Sharing Arrangements," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 87-113.
    8. Laux, Christian & Muermann, Alexander, 2006. "Mutual versus stock insurers: Fair premium, capital, and solvency," CFS Working Paper Series 2006/26, Center for Financial Studies (CFS).
    9. David Mayers & Clifford Smith, 2002. "Ownership Structure and Control: Property-Casualty Insurer Conversion to Stock Charter," Journal of Financial Services Research, Springer;Western Finance Association, vol. 21(1), pages 117-144, February.
    10. Hansmann, Henry, 1985. "The Organization of Insurance Companies: Mutual versus Stock," Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(1), pages 125-153, Spring.
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    More about this item

    Keywords

    Insurance market; Mutual firms; Commitment; Insolvency;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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