Intermediation, compensation and tacit collusion in insurance markets
Recent events involving major insurance companies and insurance brokerage firms highlight substantial incentive problems in commercial and reinsurance markets where intermediation takes place. We show that in markets with informed as well as uninformed consumers and heterogeneous risk profiles intermediation has the potential to improve social welfare. However, since intermediation reduces insurers’ market power, incentives for tacit collusion are higher compared to markets without intermediation. A controversial matter in the discussion concerning insurance intermediation is the issue of compensation customs. Our analysis provides explanations for the counterintuitive observation that brokers are usually compensated by insurance companies. The rationale for the latter is the fact that a fee paid by uninformed consumers limits the insurers’ ability to extract rents from informed consumers.
|Date of creation:||2006|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.hzv-uhh.de/|
More information through EDIRC
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.:
- Baye, Michael R & Cosimano, Thomas F, 1990. "Choosing Sides in Matching Games: Nash Equilibria and Comparative Statics," Economica, London School of Economics and Political Science, vol. 57(227), pages 283-93, August.
- d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, .
"On Hotelling's "Stability in competition","
CORE Discussion Papers RP
-385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Asher Wolinsky, 1993.
"Competition in a Market for Informed Experts' Services,"
RAND Journal of Economics,
The RAND Corporation, vol. 24(3), pages 380-398, Autumn.
- Asher Wolinsky, 1991. "Competition in a Market for Informed Experts' Services," Discussion Papers 959, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Schultz, Christian, 2004.
"Market transparency and product differentiation,"
Elsevier, vol. 83(2), pages 173-178, May.
- Winand Emons, 1994.
"Credence Goods and Fraudulent Experts,"
dp9402, Universitaet Bern, Departement Volkswirtschaft.
- Schultz, Christian, 2005. "Transparency on the consumer side and tacit collusion," European Economic Review, Elsevier, vol. 49(2), pages 279-297, February.
- Yavas, Abdullah, 1994. "Middlemen in Bilateral Search Markets," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 406-29, July.
- Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
When requesting a correction, please mention this item's handle: RePEc:zbw:hzvwps:17. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.