Optimization of Price, Default Ratio and Capital Under Regulatory Criterion of Maximizing Social Benefit
33 Pages Posted: 1 Feb 2018
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
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