Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25461
Authors: 
Doherty, Neil A.
Muermann, Alexander
Year of Publication: 
2005
Series/Report no.: 
CFS Working Paper 2005/24
Abstract: 
How do markets spread risk when events are unknown or unknowable and where not anticipated in an insurance contract? While the policyholder can 'hold up' the insurer for extra contractual payments, the continuing gains from trade on a single contract are often too small to yield useful coverage. By acting as a repository of the reputations of the parties, we show the brokers provide a coordinating mechanism to leverage the collective hold up power of policyholders. This extends both the degree of implicit and explicit coverage. The role is reflected in the terms of broker engagement, specifically in the ownership by the broker of the renewal rights. Finally, we argue that brokers can be motivated to play this role when they receive commissions that are contingent on insurer profits. This last feature questions a recent, well publicized, attack on broker compensation by New York attorney general, Elliot Spitzer.
Subjects: 
Incomplete Insurance Contracts
Brokerage
Contingent Commissions
Reputation
JEL: 
G22
G24
L14
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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