Can We Trust Our Managers in Demutualization: Game-Theoretic Approach
Korean Insurance Journal
47 Pages Posted: 3 Apr 2010
Date Written: July 20, 2007
Abstract
Demutualization is a complicated conversion procedure whereby an insurance company changes its form of business organization from mutual to stock company. Historically, much research was performed to explain the rationale of the conversion, but mainly relied on empirical analyses. Our contribution on this issue is to develop a game-theoretical background for the demutualization process, understand the rational behavior of policyholders about the managerial decision, help policyholders to design a different demutualization procedure in order to encourage managers to act for the owners’ best interests, and furnish insurance regulators with more insight into maintaining the fairness of the procedure.
Keywords: Information Asymmetry, Managerial Compensation, Demutualization, Game Theory
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