Scale Efficiency in a Dynamic Model of Canadian Insurance Companies

This research investigates scale efficiency in the Canadian Insurance Industry using an intertemporal product differentiation oligopoly model estimated on a panel of federally chartered insurance companies for the period 1988 through 1991. Significant short-run scale economies are found with respect to both the output of new policies and the stock of policies issued in previous periods. An analysis of the model provides some evidence that certain types of mergers may lead to lower premiums and, consequently, to an increase in the welfare of both producers and consumers of insurance products.