Citation

Mayers D, Smith CW. J. Bus. 1981; 54(3): 407-434.

Copyright

(Copyright © 1981, University of Chicago Press)

DOI

unavailable

PMID

unavailable

Abstract

We provide a foundation for a positive theory of insurance contracting with examples of its testable predictions. We argue that incentive conflicts arise when discretionary action is authorized and that contractual provisions and organizational structures control sources of conflict within the insurance market. Our emphasis differs from much of the previous insurance analysis. We focus on the implications of cost differences across insurance lines in the contracting/control technology. Our analysis yields testable implications about the distribution and contractual provisions (such as upper limits, deductibles, and coinsurance) and organizational structures (such as Lloyd's Associations, mutuals, and stocks) across lines of insurance.