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A theoretic analysis of key person insurance

Pu-yan Nie, Chan Wang, Zi-yue Chen and You-hua Chen

Economic Modelling, 2018, vol. 71, issue C, 272-278

Abstract: As the death or a major accident of a key person will bring a firm with disastrous losses, key person insurance has attracted increasing attention worldwide. But key person insurance is a double-edged sword because it has both positive and negative effects on a firm's performance. Different from prior papers, this study proposes to capture the two opposite effects of key person insurance by using a microeconomic analysis. The novel contribution of this paper is that besides risk-reducing effects of key person insurance, we find that key person insurance reduces the salaries of employees, output and excepted profit of the firm. More importantly, we illustrate that strong ability of the key person will promote the efficiency of employees. So this paper offers a full evaluation of firms' purchase behavior of key person insurance and also develops the theory of key person insurance.

Keywords: Key person insurance; Employees; Risk (search for similar items in EconPapers)
JEL-codes: J17 J24 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.econmod.2017.12.020

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