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Reported underwriting profits in property-liability insurance are characterized by significant cyclical fluctuations. The pricing pattern usually identified as the underwriting cycle is portrayed in figure 5-1, which shows the all-lines combined ratio for the period 1951 to 1987. Venezian (1985) identified the cycle as a second-order autoregressive process. The cycle in figure 5-1 is statistically significant and approximately six years in length. The presence of significant autoregression in prices and profits would not seem to be characteristic of a rational market (see, e.g., Abel and Mishkin, 1983). In property-liability insurance, however, cycles are not necessarily inconsistent with rationality. Cummins and Outreville (1987) have shown that cycles can occur in property-liability insurance markets even if prices reflect rational expectations. They demonstrate that intervention factors, such as policy renewal lags, information lags and regulatory delays, can create autoregressive patterns very similar to those observed in actual insurance markets. [ABSTRACT FROM AUTHOR]

The purpose of this chapter is to analyze the incidence of the cost of workers' compensation (WC) benefits and to examine whose preferences are reflected in the benefit levels chosen. The standard assumption of economists is that the costs of WC benefits are borne by workers in the form of a compensating wage differential. Several empirical studies appear to confirm this hypothesis. Dorsey and Walzer (1983) conclude that for nonunion workers there is a fully offsetting wage differential for compensation benefits, although for union members they find a significantly positive correlation between wages and benefit levels. Viscusi and Moore (1987) conclude that "the observed rate at which workers are willing to trade off base wage rates for higher levels of compensation greatly exceeds the actuarial rate of trade-off, even taking into account administrative costs. These results suggest that current benefit levels are suboptimal, provided that one abstracts from moral hazard considerations."1 [ABSTRACT FROM AUTHOR]