Researchers at Hong Kong University of Science and Technology Release New Data on Management Science (Signaling Quality With Return Insurance: Theory and Empirical Evidence): Science – Management Science

2022 JAN 18 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Research findings on Science - Management Science are discussed in a new report. According to news reporting originating from Hong Kong, People’s Republic of China, by NewsRx correspondents, research stated, “This paper examines an innovative return policy, return insurance, emerging on various shopping platforms such as Taobao.com and JD.com. Return insurance is underwritten by an insurer and can be purchased by either a retailer or a consumer.”

Funders for this research include National Key R&D Program of China, Hong Kong Research Grants Council, National Natural Science Foundation of China (NSFC).

Our news editors obtained a quote from the research from the Hong Kong University of Science and Technology, “Under such insurance, the insurer partially compensates consumers for their hassle costs associated with product return. We analyze the informational roles of return insurance when product quality is the retailer’s private information, consumers infer quality from the retailer’s price and insurance adoption, and the insurer strategically chooses insurance premiums. We show that return insurance can be an effective signal of high quality. When consumers have little confidence about high quality and expect a significant gap between high and low qualities, a high-quality retailer can be differentiated from a low-quality retailer solely through its adoption of return insurance. We confirm, both analytically and empirically with a data set consisting of more than 10,000 sellers on JD.com , that return insurance is more likely adopted by higher-quality sellers under information asymmetry. Furthermore, we find that the presence of the third party (i.e., the insurer) leads to double marginalization in signaling, which strengthens a signal’s differentiating power and sometimes renders return insurance a preferred signal, in comparison with free return, whereby retailers directly compensate for consumers’ return hassles. As an effective and costly signal of quality, return insurance may also improve consumer surplus and reduce product returns.”

According to the news editors, the research concluded: “Its profit advantage to the insurer is most pronounced under significant quality uncertainty.”

This research has been peer-reviewed.

For more information on this research see: Signaling Quality With Return Insurance: Theory and Empirical Evidence. Management Science, 2021:1-21. Management Science can be contacted at: Informs, 5521 Research Park Dr, Suite 200, Catonsville, MD 21228, USA.

The news editors report that additional information may be obtained by contacting Man Yu, Hong Kong University of Science and Technology, Dept Informat Syst Business Stat & Operat Managem, Kowloon, Clear Water Bay, Hong Kong, People’s Republic of China. Additional authors for this research include Chong Zhang and Jian Chen.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1287/mnsc.2021.4186. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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