Insurer Ownership Structure and Executive Compensation as Complements

The authors apply results on complementarities to theories of insurance companies' choices of ownership structure and executive compensation. They identify minimal restrictions on the interaction between firm policies and exogenous characteristics for theories to have testable implications for reduced-form regression coefficients. Obtaining testable implications for structural-equation regression coefficients requires additional identifying restrictions. The authors' analysis highlights a basic tradeoff between theory and statistical methods.