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Frontiers of Economics in China

Front. Econ. China    2017, Vol. 12 Issue (3) : 371-399     DOI: 10.3868/s060-006-017-0016-1
Orginal Article |
Audit Competition in Insurance Oligopolies
Nicolas Boccard1, Patrick Legros2()
1. Economics Department, Universitat de Girona, Girona 17071, Spain
2. Economics Department, Northeastern University, Boston, MA 02115, USA; Universite Libre de Bruxelles (ECARES)
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Abstract

We provide a simple framework for analyzing how competition affects the choice of audit structures in an oligopolistic insurance industry. When the degree of competition increases, fraud increases but the response of the industry in terms of investment in audit quality follows a U-shaped pattern. Following increases in competition, the investment in audit quality will decrease if the industry is initially in a low competition regime while it will increase when the industry is in a high competition regime. We show that firms will benefit from forming a joint audit agency only when the degree of competition is intermediate; in this case, cooperation might improve total welfare and we analyze the effects of contract innovation on the performance of the industry.

Keywords insurance fraud      audit quality      oligopolistic competition     
Issue Date: 19 September 2017
 Cite this article:   
Nicolas Boccard,Patrick Legros. Audit Competition in Insurance Oligopolies[J]. Front. Econ. China, 2017, 12(3): 371-399.
 URL:  
http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0016-1
http://journal.hep.com.cn/fec/EN/Y2017/V12/I3/371
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