Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/54216
Authors: 
Hofmann, Annette
Nell, Martin
Year of Publication: 
2008
Series/Report no.: 
Working Papers on Risk and Insurance 22
Abstract: 
This article deals with the impact of intermediaries on insurance market transparency and performance. In a market exhibiting product differentiation and coexistence of perfectly and imperfectly informed consumers, competition among insurers leads to non-existence of a pure-strategy market equilibrium. Consumers may become informed about product suitability by consulting an intermediary. We explicitly model two intermediary remuneration systems: commissions and fees. We find that social welfare under fees is first-best efficient but fees lead to lower expected profits of insurers and non-existence of a pure-strategy market equilibrium. Commissions, in contrast, cause 'overinformation' of consumers relative to minimal social cost, but yield a full-information equilibrium in pure strategies associated with higher expected profits of insurers. This might explain why intermediaries are generally compensated by insurers.
Subjects: 
product differentiation
intermediation
insurance oligopoly
JEL: 
D43
G22
L13
Document Type: 
Working Paper

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