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South African Journal of Economic and Management Sciences

On-line version ISSN 2222-3436
Print version ISSN 1015-8812


BARROS, Carlos  and  WANKE, Peter. Cost efficiency of African insurance companies using a finite mixture model. S. Afr. j. econ. manag. sci. [online]. 2016, vol.19, n.1, pp.64-81. ISSN 2222-3436.

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.

Keywords : Africa; insurance companies; stochastic cost frontier; latent class model; technical efficiency; panel data.

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