Audit Competition in Insurance Oligopolies

27 Pages Posted: 11 Sep 2002

See all articles by Nicolas Boccard

Nicolas Boccard

University of Girona - Department of Economics

Patrick Legros

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Northeastern University, department of economics; Centre for Economic Policy Research (CEPR)

Date Written: July 2002

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 use these results to show that firms will benefit from forming a joint audit agency only when the degree of competition is intermediate and that cooperation might improve total welfare; we also analyze the effects of contract innovation on the performance of the industry.

Keywords: Oligopoly, insurance fraud, audit

JEL Classification: D43, D82, L20, M49

Suggested Citation

Boccard, Nicolas and Legros, Patrick, Audit Competition in Insurance Oligopolies (July 2002). CEPR Discussion Paper No. 3478. Available at SSRN: https://ssrn.com/abstract=329921

Nicolas Boccard (Contact Author)

University of Girona - Department of Economics ( email )

FCEE, Campus de Montilivi
Girona, 17071
Spain

Patrick Legros

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
+32 2 650 4219/3 (Phone)
+32 2 650 4475 (Fax)

Northeastern University, department of economics ( email )

301 Lake Hall
Boston, MA 02115
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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