Providers’ affiliation,insurance and collusion |
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Authors: | Jean-Marc Bourgeon Pierre Picard Jerome Pouyet |
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Institution: | 1. INRA and Ecole Polytechnique, INRA – Économie Publique, 16 rue Claude Bernard, 75231 Paris Cedex 05, France;2. Ecole Polytechnique and HEC, Paris, Department of Economics, Ecole Polytechnique, 91128 Palaiseau Cedex, France;3. Ecole Polytechnique, Department of Economics, Ecole Polytechnique, 91128 Palaiseau Cedex, France |
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Abstract: | This paper provides a theoretical analysis of the benefits for an insurance company to develop its own network of service providers when insurance fraud is characterized by collusion between policyholders and providers. In a static framework without collusion, exclusive affiliation of providers allows insurance companies to recover some market power and to lessen competition on the insurance market. This entails a decrease in the insured’s welfare. However, exclusive affiliation of providers may entail a positive effect on customers’ surplus when insurers and providers are engaged in a repeated relationship. In particular, while insurers must cooperate to retaliate against a fraudulent provider under non-exclusive affiliation, no cooperation is needed under exclusive affiliation. In that case, an insurer is indeed able to reduce the profit of a malevolent provider by moving to collusion-proof contracts when collusion is detected, and this threat may act as a deterrent for fraudulent activities. This possibility may supplement an inefficient judicial system: it is thus a second-best optimal anti-fraud policy. |
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Keywords: | G22 L22 |
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