Organizational Form and Efficiency: The Coexistence of Stock and Mutual Property-Liability Insurers

John Cummins, Mary Weiss and Hongmin Zi
Additional contact information
Hongmin Zi: Sejong University, Seoul, Korea

Management Science, 1999, vol. 45, issue 9, 1254-1269

Abstract: This article introduces a new approach, cross-frontier analysis, for estimating the relative efficiency of alternative organizational forms in an industry. The technique is illustrated by analyzing a sample of stock and mutual property-liability insurers using nonparametric frontier efficiency methods. Cross-frontier analysis measures the relative efficiency of each organizational form by computing the efficiency of each stock (mutual) firm relative to a reference set consisting of all mutual (stock) firms. We test agency-theoretic hypotheses about organizational form, including the managerial discretion and expense preference hypotheses. The results indicate that stocks and mutuals are operating on separate production and cost frontiers and thus represent distinct technologies. Consistent with the managerial discretion hypothesis, the stock technology dominates the mutual technology for producing stock outputs and the mutual technology dominates the stock technology for producing mutual outputs. However, consistent with the expense preference hypothesis, the stock cost frontier dominates the mutual cost frontier. Our findings thus suggest a richer interpretation of organizational form than provided by previous researchers.

Keywords: organizational form; X-efficiency; data envelopment analysis; insurance (search for similar items in EconPapers)
Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (103)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.45.9.1254 (application/pdf)

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:inm:ormnsc:v:45:y:1999:i:9:p:1254-1269

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().