IDEAS home Printed from https://ideas.repec.org/a/kap/jrisku/v11y1995i3p219-32.html
   My bibliography  Save this article

Insurance Supply with Capacity Constraints and Endogenous Insolvency Risk

Author

Listed:
  • Cagle, Julie A B
  • Harrington, Scott E

Abstract

Negative shocks to industry capital and significant capital adjustment costs have been offered as an explanation of periodic "crises" in the property-liability insurance market. According to these capacity constraint models, in which post-shock production must meet a solvency constraint, increases in price can cause some or perhaps all of the costs of a negative shock to capital to be shifted to policyholders. This article develops a model of insurance supply with capacity constraints and endogenous insolvency risk that incorporates limited liability and potential loss of insurer intangible capital. If industry demand is inelastic with respect to price and capital, the model predicts that price will increase following a negative shock to capital, but by less than the amount needed to fully offset the shock. Equity value and the expected recovery by policyholders for post-shock production are predicted to decline. Elastic demand mitigates shock-induced price increases. Copyright 1995 by Kluwer Academic Publishers

Suggested Citation

  • Cagle, Julie A B & Harrington, Scott E, 1995. "Insurance Supply with Capacity Constraints and Endogenous Insolvency Risk," Journal of Risk and Uncertainty, Springer, vol. 11(3), pages 219-232, December.
    • Handle: RePEc:kap:jrisku:v:11:y:1995:i:3:p:219-32
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jrisku:v:11:y:1995:i:3:p:219-32. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.