nep-ias New Economics Papers
on Insurance Economics
Issue of 2005‒06‒14
two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Policy-oriented Parties and the Choice Between Social and Private Insurance By De Donder, Philippe; Hindricks, Jean
  2. Private Crop Insurers and the Reinsurance Fund Allocation Decision By Keith Coble; Robert Dismukes; Joseph Glauber

  1. By: De Donder, Philippe; Hindricks, Jean
    Abstract: We study the political economy of social insurance in a world where individuals differ in both income and risk. Social insurance is financed through distortionary taxation and redistributes across income and risk. Individuals vote on social insurance that they can complement with insurance bought on the private market. Private insurance is actuarially fair but suffers from adverse selection, which results in a screening equilibrium with partial coverage. The equilibrium social insurance is the result of an electoral competition game where parties maximize the utility of their members. We calculate the equilibrium social insurance offered by the two parties as well as their equilibrium membership, and study how the equilibrium outcome is affected by electoral uncertainty, distortions from taxation, risk aversion and the distribution of risk and income. We then calibrate the model to US data from the PSID survey. Lastly, we study how the political demand for social insurance is affected by the possibility to redistribute through income taxation.
    Keywords: adverse selection; political economy; redistribution; social insurance
    JEL: H23 H50
    Date: 2005–01
  2. By: Keith Coble (Mississippi State Department of Agricultural Economics); Robert Dismukes (U.S. Department of Agriculture); Joseph Glauber (U.S. Department of Agriculture)
    Abstract: This research investigates the strategic behavior of private crop insurance firms reinsured by the USDA through the Standard Reinsurance Agreement. This arrangement allows the private firm to strategically allocate individual policies into different risk sharing arrangements. Thus, firm earnings are conditioned upon accurately forecasting policy loss experience. Our analysis begins with models investigating the characteristics explaining the placement of policies into the assigned risk fund. Then a simulation model of the SRA is used to compare the post-SRA returns of actual firm allocations to two alternative allocation strategies based on aggregate models and a policy-level econometric forecasting model.
    Keywords: Risk, insurance, reinsurance, logit, policy
    JEL: Q18
    Date: 2005–06–08

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