The Value of Demand Information in an Insurance Market Under Demand and Cost Uncertainty

Abstract

The purpose of this research is to investigate the value of demand information in an insurance market under both demand and cost uncertainty, something not previously considered in the literature. Thus, the contribution of this research is to shed light on the characteristics of the value of demand information in an insurance market under demand and cost uncertainty. The main results of this research are as follows. First, the value of demand information is always positive in an insurance market under both demand and cost uncertainty. This result shows that the value of demand information is also positive even if both demand and cost uncertainty coexist. Second, increases in demand uncertainty and the investment parameter and a decrease in cost uncertainty raise the value of demand information. From this result, we find that demand and cost uncertainty have opposite effects on the value of demand information. Third, whether an increase in the number of insurance firms raises the value of demand information depends on the magnitude of cost uncertainty. When cost uncertainty is very low (high), an increase in the number of insurance firms lowers (raises) the value of demand information.