Review of Guillaume Plantin and Jean-Charles Rochet, When Insurers Go Bust: An Economic Analysis of the Role and Design of Prudential Regulation

Author: Marshall, John

Source: International Journal of the Economics of Business, Volume 16, Number 1, February 2009 , pp. 139-146(8)

Publisher: Routledge, part of the Taylor & Francis Group

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Abstract:

When Insurers Go Bust applies agency theory and the theories of adverse selection and moral hazard as the motivation for prudential regulation of insurance. The resulting scheme has strong flavors of verifiability, simplicity, consistency, and transparency. In consequence, ruin theory does not have an operational role. Theory is applied in familiar ways that are at best convenient shorthand for correct ideas and at worst acceptably suggestive. As in other sources, there is inappropriate emphasis on the general theory of excessive risk-taking, which tends to deflect attention from the specific nature of insurance firms, but the theoretical excess is adequately counterbalanced by thoughtful case studies. This book is useful for the insurance scholar and feasible as a segment of an advanced undergraduate course.

Keywords: Moral Hazard; Adverse Selection; Agency Theory; Insurance Regulation; Ruin Theory

Document Type: Research article

DOI: http://dx.doi.org/10.1080/13571510802638999

Affiliations: 1: Department of Economics, University of California, Santa Barbara, CA, USA

Publication date: 2009-02-01

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