Optimization of Price, Default Ratio and Capital Under Regulatory Criterion of Maximizing Social Benefit

33 Pages Posted: 1 Feb 2018

See all articles by Hong Mao

Hong Mao

Shanghai Second Polytechnic University

Zhongkai Wen

University of Illinois at Chicago

Date Written: January 24, 2018

Abstract

In this paper, we explore the optimal price, default ratio, and capital for insurance companies under social welfare maximization from regulators’ perspective. By comparing cases under symmetric and asymmetric information in the insurance market, we find that an optimal regulatory objective should be set to maximize social benefit and induce fair benefit distribution in a transparent insurance market, whereas the direct regulation on capital constraint can increase insurance demand and further shareholders’ benefits in a non-transparent market.

Keywords: insurance pricing; default rate; social benefit

Suggested Citation

Mao, Hong and Wen, Zhongkai, Optimization of Price, Default Ratio and Capital Under Regulatory Criterion of Maximizing Social Benefit (January 24, 2018). Available at SSRN: https://ssrn.com/abstract=3108487 or http://dx.doi.org/10.2139/ssrn.3108487

Hong Mao (Contact Author)

Shanghai Second Polytechnic University ( email )

No.2360, Jinhai Road
Shanghai, 201209
China

Zhongkai Wen

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

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