ON THE CHOICE OF INSURANCE DISTRIBUTION-SYSTEMS

This article examines insurers' choice between independent and exclusi ve agents. We assume that alternative distribution systems are efficie nt mechanisms for controlling contracting problems among policyholders , insurers, and agents. Because the use of independent agents helps co ntrol potential expropriative behavior by the insurer, the independent agency system should be more valuable for ownership structures where such problems are more severe. Thus, ownership structures and distribu tion systems are strategic complements. We test this theory by analyzi ng the association between distribution-system choice and the firm's o wnership structure, lines of insurance, advertising policy, size, geog raphic concentration, and cost structure among property-liability insu rers.