Efficiency under full information and uncertainty: Evidence from Turkish insurance industry (1990-2004)

ABSTRACTDoctor of PhilosophyEfficiency Under Full Information and Uncertainty:Evidence From Turkish Insurance Industry(1990-2004)Evrim TURGUTLUDokuz Eylul UniversityInstitute Of Social SciencesDepartment of EconomicsUncertainty and risk exist in every part of life. In historical process, somemethods have been developed to create protection against risk and uncertainty.The most widely used method which has been developed and still exist today isinsurance. Insurance industry, has a mission beyond undertaking andtransferring similar risks and covering possible losses. Providing the necessaryfunds for economic growth and stabilization has become the major function ofthe industry.This study aims to analyze the technical efficiencies of Turkish insurancefirms during 1990-2004 period. Uncertainty is a natural component of insuranceindustry. To this end, both widely used Data Envelopment Analysis (DEA) andStochastic Frontier Analysis (SFA) approaches and recently developed Chance-Constrained Data Envelopment Analysis (CCDEA) are employed. Thestatistical tests imply that different techniques provide inconsistent results. Thefindings of the study indicate the inefficiency problem in the Turkish insuranceindustry. In order to determine the sources of inefficiency Tobit models areestimated. Tobit models include the widely used firm-specific and industry-specific variables, exogenous shock indicators as well as economic uncertaintyand insurance penetration variables which are originally developed witihin theframework of this study. The findings of these models indicate that theeconomic uncertainty denoted by unexpected inflation and insurancepenetration have the most significant impact on the efficiency of the insuranceindustry.We expect that the analytical findings of the study, will help to identifythe problems of the Turkish insurance industry and develop solutionsaccordingly. Furthermore, this study will be a significant step towards fulfillingthe gap in the literature on the insurance industries of the developing countries,as well as Turkey.Key Words: 1) Insurance Industry, 2)Efficiency, 3) Data Envelopment Analysis,4) Chance-Constrained Data Envelopment Analysis, 5)Stochastic Frontier Analysis.