Original Research

Cost efficiency of African insurance companies using a finite mixture model

Carlos Barros, Peter Wanke
South African Journal of Economic and Management Sciences | Vol 19, No 1 | a1238 | DOI: https://doi.org/10.4102/sajems.v19i1.1238 | © 2016 Carlos Barros, Peter Wanke | This work is licensed under CC Attribution 4.0
Submitted: 13 October 2014 | Published: 02 March 2016

About the author(s)

Carlos Barros, University of Lisbon
Peter Wanke, Federal University of Rio de Janeiro, Brazil

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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.


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