Open AccessCost efficiency of African insurance companies using a finite mixture model
Author(s) -
Carlos Barros,
Peter Wänke
Publication year - 2016
Publication title -
suid-afrikaanse tydskrif vir ekonomiese en bestuurswetenskappe/south african journal of economic and management sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.277
H-Index - 17
eISSN - 2222-3436
pISSN - 1015-8812
DOI - 10.4102/sajems.v19i1.1238
Subject(s) - frontier , sample (material) , identification (biology) , cost efficiency , econometrics , mixture model , business , class (philosophy) , actuarial science , economics , computer science , geography , artificial intelligence , chemistry , botany , archaeology , chromatography , biology , operating system
This paper evaluates the operational practices by African insurance companies from Angola and Mozambique, using a finite mixture model that allows controlling for unobserved heterogeneity. More precisely, a stochastic frontier latent class model is adopted in this research to estimate the cost frontiers for each of the different technologies embedded in this heterogeneity. This model not only enables the identification of different groups of African insurance companies from Angola and Mozambique, but it also permits the analysis of their cost efficiency. The results indicate the existence of three different technology groups in the sample, suggesting the need for different business strategies. The policy implications are also derived