Do consumers benefit from more informed firms?

  • We study the impact of estimation errors of firms on social welfare. For this purpose, we present a model of the insurance market in which insurers face parameter uncertainty about expected loss sizes. As consumers react to under- and overestimation by increasing and decreasing demand, respectively, insurers require a safety loading for parameter uncertainty. If the safety loading is too small, less risk averse consumers benefit from less informed insurers by speculating on them underestimating expected losses. Otherwise, social welfare increases with insurers’ information. We empirically estimate safety loadings in the US property and casualty insurance market, and show that these are likely to be sufficiently large for consumers to benefit from more informed insurers.

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Author:Christian KubitzaGND
URN:urn:nbn:de:hebis:30:3-771761
Series (Serial Number):ICIR Working Paper Series (No. 32/17 [20.08.17])
Publisher:International Center for Insurance Regulation
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2017
Year of first Publication:2017
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2024/03/26
Tag:Economics of Information; Parameter Uncertainty; Price Uncertainty
Edition:Version August 20, 2017
Page Number:58
HeBIS-PPN:516922831
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:D Microeconomics / D1 Household Behavior and Family Economics / D11 Consumer Economics: Theory
D Microeconomics / D8 Information, Knowledge, and Uncertainty / D83 Search; Learning; Information and Knowledge; Communication; Belief
G Financial Economics / G1 General Financial Markets / G14 Information and Market Efficiency; Event Studies
G Financial Economics / G2 Financial Institutions and Services / G20 General
L Industrial Organization / L1 Market Structure, Firm Strategy, and Market Performance / L11 Production, Pricing, and Market Structure; Size Distribution of Firms
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht