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From regulation to free market: the experience of the European motor insurance market

Author

Listed:
  • Domenico SCALERA

    ([n.a.])

  • Alberto ZAZZARO

    (Universita' Politecnica delle Marche, Dipartimento di Economia)

Abstract

Increasing premiums, increasing claims and decreasing profits are three striking facts associated in some European countries to motor insurance liberalization of 1990's. In this paper, we argue that these phenomena may be considered not a consequence of collusion or other misapplications of deregulation but rather an effect of the impact of liberalization on the companies’ optimal choices. In particular, by extending the Salop-Economides model, we show that price deregulation involves decreasing investments in monitoring and increasing compensation costs. Therefore, the transition from regulation to competition can yield prices and profits moving in either direction and possibly opposite directions.

Suggested Citation

  • Domenico SCALERA & Alberto ZAZZARO, 2004. "From regulation to free market: the experience of the European motor insurance market," Working Papers 205, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    • Handle: RePEc:anc:wpaper:205
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    References listed on IDEAS

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    6. Bond, Eric W. & Crocker, Keith J., 1997. "Hardball and the soft touch: The economics of optimal insurance contracts with costly state verification and endogenous monitoring costs," Journal of Public Economics, Elsevier, vol. 63(2), pages 239-264, January.
    7. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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    Cited by:

    1. Stefania BUSSOLETTI & Roberto ESPOSTI, 2004. "Regional Convergence, Structural Funds and the Role of Agricolture in the EU. A Panel-Data Approach," Working Papers 220, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    2. Renato BALDUCCI, 2005. "Public Expenditure and Economic Growth. A critical extension of Barro's (1990) model," Working Papers 240, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    3. Roberto ESPOSTI & Pierpaolo PIERANI, 2005. "Price, Private Demand and Optimal Provision of Public R&D in Italian Agriculture," Working Papers 238, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.

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    More about this item

    Keywords

    motor insurance; regulation; spatial models;
    All these keywords.

    JEL classification:

    • 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
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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