Club Enlargement: Early Versus Late Admittance

Within an incomplete contract framework, we analyze the enlargement strategy of a club facing applicants that differ in wealth and reform status. While an applicant benefits from entry, the club only gains if the entrant makes an adjustment investment. The club has a choice between early admittance, using its limited internal enforcement powers to ensure reform, and late admittance conditional on prior reform. Wealthy candidates enter early as the club can charge a higher entrance fee for undiscounted membership benefits. For poor applicants, the club applies a reversed admittance order: A less advanced applicant is admitted early to reform as member, while a more advanced enters late after it has reformed. Moreover, the admittance rents increase in the ratio of reform distance to wealth. The viability of the late admittance strategy depends on the club's commitment ability. If the club can credibly commit to a stage-financing schedule, it can induce applicants to reform without overfunding. In the repeated game, the threat of denying additional funding is not credible, and more overfunding is required for reform.

Commodity bundling in Japanese non-life insurance: Savings-type products as self-selection mechanism

This paper develops a self-selection rationale for the use of commodity bundling in the case of savings-type casualty insurance in Japan. The savings-cum-insurance bundle is described in detail. Two alternative models to explain its success are presented. The moral hazard model assumes that casualty insurance claims depend on unobservable actions of the insured (lack of care), while the adverse selection model centers around the assumption that consumers have private information about their exogenous claim probability. The likelihood of a claim is inversely related to personal income, because preventive safety measures are normal goods. The evidence from casualty insurance in Japan supports the adverse selection theory, while the moral hazard model is inconsistent with some of the institutional and empirical facts

Implicit contracts between regulator and firms: The case of Japanese casualty insurance

This paper presents a dynamic model of regulatory protection. The regulator grants the industry rents in exchange for cooperation in an asymmetric information environment as part of an implicit contract enforced by a trigger strategy. At a corner-solution this contract may be stable under gradual changes of society's preference parameter, while beyond a threshold level further changes may result in drastic deregulation. Both predictions are found to hold in the case of Ministry of Finance regulation in the Japanese casualty insurance industry

Commodity Bundling in the Japanese Non-Life Insurance Industry: Savings-Type Products as Self-Selection Mechanism

This paper develops a self-selection explanation for the use of commodity bundling in the case of savings-type casualty insurance in Japan. The institutional characteristics of the savings-cum-insurance bundle are explained in detail. Two alternative models to explain its success are presented. The moral hazard model assumes that casualty insurance claims are cause by unobservable discretionary actions of the insured (lack of care), while the adverse selection model is centered around the assumption that consumers have private information about their exogenous claim probability. The likelihood of a claim is assumed to fall as personal income rises, because preventive safety measures are normal goods and wealthier people therefore purchase more safety. The predictions of these two models are then compared to evidence from casualty insurance in Japan. The adverse selection theory is on balance better supported, while the moral hazard story is inconsistent with some of the institutional and empirical facts

Sprayed and seed dressed pesticides in pollen, nectar and honey of oilseed rape

contribution to session VHoney bee poisoning incidents and monitoring schemes

Club enlargement: early versus late admittance

We develop an incomplete contract model to analyze the enlargement strategy of a club. An applicant is characterized by his wealth and the degree of conformity with the club standard. The club gains only from a fully reformed new member, but reform is costly. The club chooses between early admittance, where entry is conditioned on completed reform. Under the optimal enlargement strategy of the club, wealthy applicants pay an entrance fee and enter early, and poor applicants enter in reversed order: A less advanced is admitted early and a more advanced late. Moreover, poor applicants extract rents that increase in the ration of reform distance to wealth. If the club can impose a deadline for late entry, it can eliminate all rents with stage financing. In the dynamic game, renegotiation undermines the viability of the late admittance strategy. In the finite game, the applicant's rent from a late offer is non-monotonic in his reform distance and the ability to deteriorate his reform status strategically need not be detrimental to the club