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Efficiency Comparisons between Mutual and Stock Life Insurance Companies

Listed author(s):
  • M. F. Grace
  • L. A. Gardner

This research examines the relationship between firm efficiency and choice of organizational form using a seven year panel data set of 586 life insurers. Our study window is from 1985 to 1991. We began the study with two questions in mind: "Do stocks and mutuals use different production technologies?" and "Are stocks and mutuals equally efficient or is one form relatively more efficient than the other?". Using some cost and error structure tests that resemble those found in recent efficiency studies, we find evidence that stocks and mutuals have distinctive cost structures and production technologies. Results also show that efficiency varies with organizational form, with stocks being more scale efficient than mutuals but mutuals being more X-efficient than stocks.

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Paper provided by EconWPA in its series Risk and Insurance with number 9407003.

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Date of creation: 14 Jul 1994
Handle: RePEc:wpa:wuwpri:9407003
Note: Postscript (ASCII) RMI GRACE2.ABS
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Mayers, David & Smith, Clifford Jr., 1986. "Ownership structure and control : The mutualization of stock life insurance companies," Journal of Financial Economics, Elsevier, vol. 16(1), pages 73-98, May.
  2. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
  3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  4. C D O'Brien, 1991. "Measuring the Output of Life Assurance Companies*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 16(2), pages 207-235, April.
  5. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-139, May.
  6. Steven Shavell, 1979. "Risk Sharing and Incentives in the Principal and Agent Relationship," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 55-73, Spring.
  7. 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.
  8. Kellner, S & Mathewson, G Frank, 1983. "Entry, Size Distribution, Scale, and Scope Economies in the Life Insurance Industry," The Journal of Business, University of Chicago Press, vol. 56(1), pages 25-44, January.
  9. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
  10. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
  11. 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.
  12. Mester, Loretta J, 1987. " A Multiproduct Cost Study of Savings and Loans," Journal of Finance, American Finance Association, vol. 42(2), pages 423-445, June.
  13. Randall Geehan, 1977. "Returns to Scale in the Life Insurance Industry," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 497-514, Autumn.
  14. Le Compte, Richard L B & Smith, Stephen D, 1990. " Changes in the Cost of Intermediation: The Case of Savings and Loans," Journal of Finance, American Finance Association, vol. 45(4), pages 1337-1346, September.
  15. Gardner, Lisa A. & Grace, Martin F., 1993. "X-Efficiency in the US life insurance industry," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 497-510, April.
  16. Blair, Roger D & Jackson, Jerry R & Vogel, Ronald J, 1975. "Economies of Scale in the Administration of Health Insurance," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 185-189, May.
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