nep-ias New Economics Papers
on Insurance Economics
Issue of 2005‒09‒11
nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Household Demand for Health Insurance: Price and Spouse's Coverage By Marjorie Honig; Irena Dushi
  2. Sovereign Debt, Volatility and Insurance By Kenneth Kletzer
  3. Offers or Take-up: Explaining Minorities’ Lower Health Insurance Coverage By Irena Dushi; Marjorie Honig
  4. Insuring Consumption and Happiness Through Religious Organizations By Rajeev Dehejia; Thomas DeLeire; Erzo F.P. Luttmer
  5. Should the FDIC worry about the FHLB? The impact of Federal Home Loan Bank advances on the bank insurance fund By Rosalind L. Bennett; Mark D. Vaughan; Timothy J. Yeager
  6. When Do Health Savings Accounts Decrease Health Care Costs? By Masahito Watanabe (Georgetown University)
  7. Contracts and insurance group formation by myopic players By Lazarova,Emiliya; Borm,Peter; Velzen,Bas van
  8. Indonesia's New Deposit Guarantee Law By Ross H. McLeod
  9. Trade Credit as Collateral By Massimo Omiccioli

  1. By: Marjorie Honig (Hunter College, Department of Economics); Irena Dushi (International Longevity Center-USA)
    Abstract: Demand for employment-based insurance is typically treated as an individual rather than a household decision. Dual-earner households are now the modal U.S. married household, however, and most firms offer family coverage as an option available to employees. Findings from a model estimating married workers' take-up of their own insurance with their own and their spouses' offers indicate that both own price and potential coverage under spouses' plans are important determinants of take-up. We find evidence of selection into jobs offering insurance among wives but not husbands. Findings also suggest that dual-earners are not aware of the potential wage/benefit trade-off. Data are from the 1996 panel of SIPP.
    JEL: J32 J10 J12
    Date: 2005
  2. By: Kenneth Kletzer
    Abstract: External debt increases the vulnerability of indebted emerging market economies to macroeconomic volatility and financial crises. Capital account reversals often lead to sovereign debt repayment crises that are only resolved after prolonged and difficult debt restructuring. Foreign indebtedness exacerbates domestic financial distress in crisis, increasing both the incidence and severity of emerging market crises. These outcomes contrast with the presumption that access to international capital markets should help countries to smooth domestic consumption and investment against macroeconomic shocks. This paper uses models of sovereign to reconsider the role of sovereign debt renegotiation for international risk sharing and presents an approach for analyzing contractual innovations for implementing contingent debt repayments. The financial innovations that might allow risk-sharing rather than risk-inducing capital flows go beyond contractual changes that ease debt renegotiation by separating contingent payments from bonds.
    Date: 2005–09
  3. By: Irena Dushi (International Longevity Center-USA); Marjorie Honig (Hunter College, Department of Economics)
    Abstract: There is considerable evidence that minorities are less likely than whites to be covered under employment-based health insurance. In 2001, rates of Hispanic full-time workers were 21 and 15 percentage points lower than those of non-Hispanic white men and women. For policy purposes, understanding whether these disparities are generated by differences in the likelihood of being in a job offering coverage or in decisions regarding take-up of offered coverage is critical. We find significant effects of race and ethnicity on offers but not on take-up, controlling for job and demographic characteristics including nativity. Magnitudes of these effects differ by gender and household composition.
    JEL: I10 J15 J32
    Date: 2005
  4. By: Rajeev Dehejia; Thomas DeLeire; Erzo F.P. Luttmer
    Abstract: This paper examines whether involvement with religious organizations insures an individual's stream of consumption and of happiness. Using data from the Consumer Expenditure Survey (CEX), we examine whether households who contribute to a religious organization are able to insure their consumption stream against income shocks and find strong insurance effects for whites. Using the National Survey of Families and Households (NSFH), we examine whether individuals who attend religious services are able to insure their stream of happiness against income shocks and find strong happiness insurance effects for blacks but smaller effects for whites. Overall, our results are consistent with the view that religion provides an alternative form of insurance for both whites and blacks though the mechanism by which religious organizations provide insurance to each of these groups appears to be different.
    JEL: D12 H31 J60 Z12
    Date: 2005–08
  5. By: Rosalind L. Bennett; Mark D. Vaughan; Timothy J. Yeager
    Abstract: Does growing commercial-bank reliance on Federal Home Loan Bank (FHLBank) advances increase expected losses to the Bank Insurance Fund (BIF)? Our approach to this question begins by modeling the link between advances and expected losses. We then quantify the effect of advances on default probability with a CAMELS-downgrade model. Finally, we assess the impact on loss-given-default by estimating resolution costs in two scenarios: the liquidation of all banks with failure probabilities above two percent and the liquidation of all banks with advance-to-asset ratios above 15 percent. The evidence points to non-trivial increases in expected losses. The policy implication is that the FDIC should price FHLBank-related exposures.
    Keywords: Banks and banking ; Financial institutions ; Deposit insurance
    Date: 2005
  6. By: Masahito Watanabe (Georgetown University) (Department of Economics, Georgetown University)
    Abstract: The introduction of Health Savings Accounts (HSA) is aimed to reduce skyrocketing health care costs. The expected mechanism, according to proponents, is that enrolling in the HSA program reduces demand for health services by increasing the costconsciousness of consumers currently covered by conventional health plans. This paper addresses when such accounts can decrease health care costs. The analysis in a simple one-period framework reveals that if the HSA program is to decrease medical services consumption, it is not due to the HSA itself but is due to a high-deductible health insurance policy accompanied by the account. In other words, the HSA program can lower health expenditure only when it is accompanied by a higherdeductible health plan. The tax-preferred individual accounts themselves encourage health care consumption by lowering the effective price of health care. Therefore, the cost-containment effect of a high-deductible plan is counteracted by tax deductibility. The overall effect of the HSA program on health care costs is ambiguous and depends on these opposing forces. Classification-JEL Codes: D91, H51, I11
    Keywords: Health Savings Accounts, Medicare reform, Health insurance
  7. By: Lazarova,Emiliya; Borm,Peter; Velzen,Bas van (Tilburg University, Center for Economic Research)
    Abstract: This paper employs a cooperative approach to insurance group formation problems. The insurance group formation is analyzed in terms of stability with respect to one-person deviations. Depending on the exact contractual setting, three stability concepts are proposed: individual, contractual and compensation stability. When we apply our general framework to the standard insurance setting of Rothschild and Stiglitz (1976), we find that, in each type of contractual setting, there are stable individually rational pooling outcomes while, on the contrary, individually rational separating outcomes are not stable.
    Keywords: group formation; stability;contracts
    JEL: C71
    Date: 2005
  8. By: Ross H. McLeod
    Abstract: The blanket guarantee introduced in 1998 in response to the emerging banking and economic crisis resulted in $50 billion of losses to the general public. The government has now introduced a law that enables the phasing out of this blanket guarantee, but which also allows for its reinstatement in the event of any threatened collapse of the banking system. Rather than eliminating the possibility of any repetition of the previous banking disaster, the new law effectively mandates an almost identical approach to handling system-wide banking collapses in the future, suggesting that the authorities and their advisers learned very little from the recent bitter experience. It is argued here that the crucial starting point for formulating policy in this field is to correctly specify the exact purpose that government intervention is intended to serve: namely, the avoidance of major macroeconomic disruption as a result of bank failures.
    Keywords: banking, bailout, deposit guarantee, deposit insurance, moral hazard
    JEL: E42 E44 G21 G28
    Date: 2005–08
  9. By: Massimo Omiccioli (Bank of Italy, Economic Research Department)
    Abstract: A remarkable feature of short-term business finance is the widespread use of trade credit as collateral in bank borrowing, especially by small and medium-sized firms. The paper models the incentives for a firm to collateralize accounts receivable as a trade-off between the benefit from lower interest rates and the implicit cost from the disclosure of private information associated with this form of collateral. The model shows that the share of receivables pledged as collateral is larger: i) when the borrowing firm is riskier (and the difference in interest rates between secured and unsecured lending is larger); ii) when information disclosure costs for the firm are lower (e.g., when the information is dispersed among many banks and firm’s assets are mostly made up of tangibles); iii) when the default correlation between sellers and buyers is lower; iv) when the legal protection of creditors is weaker (and suppliers have a stronger advantage over banks in monitoring and enforcing loan contracts). These predictions are supported by empirical evidence in a sample of 7,250 Italian firms.
    Keywords: trade credit, collateral, information disclosure
    JEL: G32 G33 L15
    Date: 2005–06

This nep-ias issue is ©2005 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.