What is it about?
This article provides evidence on the gift exchange anomaly using standard field data on the performance of Islamic insurance (takaful) operators (TOs). Takaful is a type of mutual insurance where policyholders insure each other and hire an operator to manage operations against a hybrid of financial incentives. These incentives include an upfront agency fee, which is found to have an inverted U-shaped relationship with performance of TOs. We use our results to identify an optimal hybrid contract for TO and find optimal agency fee as a percentage of net earned premium.
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Why is it important?
It uses non-experimental data and find evidence of Akerlof's gift exchange.
Perspectives
Experimental economics challenges the selfishness assumption in economics and introduced some important new dimensions to the literature. I was teaching a subject on Islamic Insurance and had to analyse operations of insurance companies. Given my interest in experimental economics and the nature of the objections on results generated by laboratory experiments, I thought it was interesting to see if I could use actual field data to explore if there is any evidence in favour or against the gift exchange anomaly.
Hayat Khan
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This page is a summary of: Gift exchange anomaly: evidence from incentives vis-à-vis performance of Islamic insurance operators, Applied Economics Letters, February 2015, Taylor & Francis,
DOI: 10.1080/13504851.2015.1016202.
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