A Theory of Mutual Formation and Moral Hazard with Evidence from the History of the Insurance Industry.
Nonprofit, mutually owned insurance and banking organizations have; significant market shares in the insurance and banking industries. A first; step in a systematic study of these financial mutual is to examine the; reasons for their formation. Doing so provides empirical support for the; view that these mutual arose as an efficient means of addressing; contracting challenges caused by aggregate uncertainties and moral hazard.; A formal model with this property is presented. We argue that information; asymmetries do more to explain the kinds of contracts offered by financial; mutual than do agency problems between owners, managers, and customers. Article published by Oxford University Press on behalf of the Society for Financial Studies; in its journal, The Review of Financial Studies.