Moral Hazard and Insurance Market Structure

Yoram Eden and Yehuda Kahane

Chapter 7 in Risk, Information and Insurance, 1991, pp 143-163 from Springer

Abstract: Abstract The objective of this article is to suggest an explanation for the observed market structure of the insurance industry, which is based on three parties—insureds, insurers, and reinsurers. This structure should not be viewed simply as a special version of the common marketing system in which the reinsurer is analogous to a wholesaler and the insurers are analogous to the retailers. Careful examination reveals a much more complicated framework involving agency and information problems as well as trading of financial capacity. Despite its practical importance, little has been written about this issue and most of the articles that do appear in the literature are not really in tune with reality, since the authors restrict themselves to dealing with only two parties at a time (insured and insurer or insurer and reinsurer). Moreover, they deal with market structure and retention problems as two distinct issues.

Keywords: Capital Market; Moral Hazard; Expected Loss; Monitoring Cost; Corner Solution (search for similar items in EconPapers)
Date: 1991
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-94-009-2183-2_7

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DOI: 10.1007/978-94-009-2183-2_7

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