Surety Bonds with Fair and Unfair Pricing

Achim Wambach and Andreas R Engel
Additional contact information
Andreas R Engel: TWS Partners, Widenmayerstr. 38, D-80538 Muenchen, Germany

The Geneva Risk and Insurance Review, 2011, vol. 36, issue 1, 36-50

Abstract: Surety bonds are instruments used in public and private procurement to avoid the problem of contractor bankruptcy. A surety company issuing such a bond guarantees to either finish the project itself or pay the bond to the procurement agency in case of contractor's bankruptcy. This situation is analysed under the assumption that the bond is either priced fairly, or a risk loading that is proportional to the money at risk is imposed. If the surety is priced fairly, full insurance (or even overinsurance) is optimal. If the surety is priced unfairly, more solvent contractors are more likely to win, thus the problem of abnormally low tenders is alleviated.

Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.palgrave-journals.com/grir/journal/v36/n1/pdf/grir20108a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/grir/journal/v36/n1/full/grir20108a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:genrir:v:36:y:2011:i:1:p:36-50

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10713

Access Statistics for this article

The Geneva Risk and Insurance Review is currently edited by Michael Hoy and Nicolas Treich

More articles in The Geneva Risk and Insurance Review from Palgrave Macmillan, International Association for the Study of Insurance Economics (The Geneva Association) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().