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Competition and efficiency in the Dutch life insurance industry†

Competition and efficiency in the Dutch life insurance industry† The lack of available prices in the Dutch life insurance industry makes competition an elusive concept that defies direct observation. Therefore, this article investigates competition by analysing several factors which may affect the competitive nature of a market and various indirect measurement approaches. After discussing various supply and demand factors which may constitute a so-called tight oligopoly, we establish the existence of scale economies and the importance of cost X-inefficiency, since severe competition would force firms to exploit available scale economies and to reduce X-inefficiencies. Both scale economies and X-inefficiencies turn out to be substantial, although more or less comparable to those found for insurers in other countries and to other financial institutions. Further, we apply the Boone indicator, a novel approach to measuring the effects of competition. This indicator points to limited competition in comparison to other sectors in the Netherlands. Further investigations of submarkets should reveal where policy measures in order to promote competition might be appropriate. †The views expressed in this article are personal and do not necessarily reflect those of CPB or DNB http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Economics Taylor & Francis

Competition and efficiency in the Dutch life insurance industry†

Applied Economics , Volume 40 (16): 22 – Aug 1, 2008
22 pages

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References (37)

Publisher
Taylor & Francis
Copyright
Copyright Taylor & Francis Group, LLC
ISSN
1466-4283
eISSN
9999-7004
DOI
10.1080/00036840600949298
Publisher site
See Article on Publisher Site

Abstract

The lack of available prices in the Dutch life insurance industry makes competition an elusive concept that defies direct observation. Therefore, this article investigates competition by analysing several factors which may affect the competitive nature of a market and various indirect measurement approaches. After discussing various supply and demand factors which may constitute a so-called tight oligopoly, we establish the existence of scale economies and the importance of cost X-inefficiency, since severe competition would force firms to exploit available scale economies and to reduce X-inefficiencies. Both scale economies and X-inefficiencies turn out to be substantial, although more or less comparable to those found for insurers in other countries and to other financial institutions. Further, we apply the Boone indicator, a novel approach to measuring the effects of competition. This indicator points to limited competition in comparison to other sectors in the Netherlands. Further investigations of submarkets should reveal where policy measures in order to promote competition might be appropriate. †The views expressed in this article are personal and do not necessarily reflect those of CPB or DNB

Journal

Applied EconomicsTaylor & Francis

Published: Aug 1, 2008

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