Best Paper - Volume 9

The JFI editors are pleased to announce that the JFI Best Paper Prize for the most significant paper published in the 2000 Journal of Financial Intermediation has gone to Allen N. Berger, J. David Cummins, Mary A. Weiss and Hongmin Zi for the paper, "Conglomeration vs. Strategic Focus:  Evidence from the Insurance Industry," published in Volume 9, Issue 4. The prize carries with it a $2,500 check for the winners.

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Conglomeration vs. Strategic Focus:
Evidence from the Insurance Industry

Allen N. Berger
Board of Governors of the Federal Reserve System, Washington, DC 20551

J. David Cummins
The Wharton School, University of Pennsylvania, Philadelphia, PA 19104

Mary A. Weiss
Temple University, Philadelphia, PA 19122

AND

Hongmin Zi
Sejong University, Seoul, Korea

Abstract

We provide evidence on the validity of the conglomeration hypothesis versus the strategic focus hypothesis for financial institutions using data on U.S. insurance companies. We distinguish between the hypotheses using profit scope economies, which measures the relative efficiency of joint versus specialized production, taking both costs and revenues into account. The results suggest that the conglomeration hypothesis dominates for some types of financial service providers and the strategic focus hypothesis dominates for other types. This may explain the empirical puzzle of why joint producers and specialists both appear to be competitively viable in the long run. Journal of Economic Literature Classification Numbers: G22, G28, G34, L23, L89. ©2000 Academic Press, Inc.