TITLE
"Life Insurance, Price Regulation and the Theory of Contestable
Markets," Journal of
Insurance Issues, Beliveau, Barbara C., 1985,
Vol. VIII, No. 1: 1-12.
ABSTRACT
The "perfectly contestable" market has been proposed
as the appropriate generalization of the economic concept of a
perfectly competitive market for industries characterized by joint
production as well as appreciable economies of scale or scope.
In a contestable market, industry structure and market behavior
are derived from underlying cost efficiencies. Entry (actual or
potential) insures productive efficiency and welfare maximization.
The assumptions underlying the theory of contestable markets
and their applicability to the U.S. life insurance industry are
discussed. The hypothesis that the market for life insurance functions
"as if contestable" is then tested. The empirical results
are consistent with this hypothesis for a substantial segment
of the industry. The policy implications of this finding for insurance
premium-regulation are then explored.
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