Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2001:9: Economics of Scale and Sorting in Pure vs. Mutual Insurance Societies: Evidence from Historical Data

Lena Nekby , Mahmood Arai and Michael Lundholm ()
Additional contact information
Lena Nekby: FIEF, Postal: FIEF, Wallingatan 38, SE-111 24 Stockholm, Sweden
Mahmood Arai: FIEF, Postal: FIEF, Wallingatan 38, SE-111 24 Stockholm, Sweden
Michael Lundholm: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: Based on unique Swedish historical panel data on voluntary Swedish sick insurance societies 1902-1910, we test the hypothesis od economies of scale in sick insurance provision. We report results indicating that pure insurance societies charging only premium ex ante do not exhibit returns to scale, while mutual insurance societies, who levy both an ex ante premium and an ex post assessment, do. We argue that this is due to a sorting mechanism implying that pure insurance societies attract high risk workers as they expand.

Keywords: friendly societies; sick insurance; health insurance; returns to scale

JEL-codes: G22; I18; N23

23 pages, September 12, 2001

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