Information Spillovers, Margins, Scale and Scope: With an Application to Canadian Life Insurance
NBER Working Paper No. 3979 (Also Reprint No. r1763)
This paper develops a model of the production of life insurance services. The focus is on price setting ability and the cost advantages from size and diversity. The model characterizes insurers decisions on the face value and number of policies and the number of insurance lines. The model is applied to Canadian life insurance firms. Price-cost margins average from 13% to 40%. These margins emanate from information spillovers generated by marketing activities. Cost advantages due to size are small, but are substantial from diversity. Returns to scale average from 1.13 to 1.40, while returns to scope average from 70% to 100%.
Published: The Scandinavian Journal of Economics, Vol. 94, 1992 Supplement, pp. 95-105(1992).