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Asymmetric Dependence between Efficiency and Market Power in the Taiwanese Life Insurance Industry

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  • Chung-Chu Chuang
  • Yu-Chieh Tang

Abstract

Both market power and efficiency contribute to the viability of the insurer, making them essential for the management of life insurance companies. This study measured efficiency using the stochastic frontier approach based on the translog cost function. We then investigated the relationship between efficiency and market power using generalized extreme value analysis. The results show a strong nonlinear, asymmetric dependence between efficiency and market power of leading Taiwanese insurers. In other words, companies with greater market power do not necessarily exhibit greater efficiency. This study provides a reference to aid life insurance companies in the formulation of operational strategies. Key words: Market power, Efficiency, Stochastic frontier approach, Asymmetric dependence.JEL: D40, G22, L11.

Suggested Citation

  • Chung-Chu Chuang & Yu-Chieh Tang, 2015. "Asymmetric Dependence between Efficiency and Market Power in the Taiwanese Life Insurance Industry," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(4), pages 511-525.
    • Handle: RePEc:voj:journl:v:62:y:2015:i:4:p:511-525:id:60
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    More about this item

    Keywords

    Market power; Efficiency; Stochastic frontier approach; Asymmetric dependence;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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