The authors analyze the efficiency and market equilibrium of endogenous categorization, where insurance companies classify risks on the basis of insureds' voluntary consumption of products that are correlated with underlying loss propensities, and they show that the use of such categorization...

This article reexamines the administered contracts approach to regulation in light of recent empirical research that establishes the importance of transaction-costs in the organizational choice and design decisions. After reviewing the fundamentals of transaction cost reasoning and the franchise...

We examine the optimal claims settlement strategy for a liability insurer when claimants can permanently misrepresent their losses by engaging in costly claims falsification. In this environment, claims auditing is not a possible deterrent to fraud, and the settlement strategy consists of an...

A two-stage game is used to model firms' strategic incentives to divide production among autonomous competing units through divisionalization, franchising, or divestiture. Firms simultaneously choose their number of competing units, which then engage in Cournot competition. While it is costly to...

Background risk can influence the performance of insurance markets that must deal with adverse selection when applicants are risk vulnerable, since they are more averse to bearing the insurable risk as a result of their exposures to background risk. We show that background risk always results in...

Impediments to worker mobility serve to mitigate the attrition of healthy individuals from employer-sponsored insurance pools, thereby creating a de facto commitment mechanism that allows for more complete insurance of health risks than would be possible in the absence of such frictions. Using...

Price caps, while widely touted, are less commonly implemented. Most incentive schemes involve profit sharing and are thus variants of sliding-scale regulation. I show that, relative to price caps, some degree of profit sharing always increases expected welfare. Numerical simulations show that...