nep-ias New Economics Papers
on Insurance Economics
Issue of 2005‒11‒05
seven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Income Risk and the Benefits of Social Insurance: Evidence from Indonesia and the United States By Raj Chetty; Adam Looney
  2. Consumption Smoothing and the Welfare Consequences of Social Insurance in Developing Economies By Raj Chetty; Adam Looney
  3. Moral Hazard in Nursing Home Use By David C. Grabowski; Jonathan Gruber
  4. Risk, uncertainty, and asset prices By Geert Bekaert; Eric Engstrom; Yuhang Xing
  5. A Decision Rule Based on the Conditional Value at Risk By Werner Jammernegg; Peter Kischka
  6. Limited Enforceable International Loans, International Risk Sharing and Trade By Almuth Scholl
  7. The Value of Statistical Life and the Economics of Landmine Clearance in Developing Countries By John Gibson; Sandra Barns; Michael Cameron; Steven Lim; Frank Scrimgeour; John Tressler

  1. By: Raj Chetty; Adam Looney
    Abstract: This paper examines the welfare consequences of social safety nets in developing economies relative to developed economies. Using panel surveys of households in Indonesia and the United States, we find that food consumption falls by approximately ten percent when individuals become unemployed in both countries. This finding suggests that introducing a formal social insurance program would have small benefits in terms of reducing consumption fluctuations in Indonesia. However, in contrast with households in the U.S., Indonesians use costly methods such as reducing human capital investment to smooth consumption. The primary benefit of social insurance in developing countries may therefore come not from consumption smoothing itself but from reducing the use of inefficient smoothing methods.
    JEL: H0
    Date: 2005–10
  2. By: Raj Chetty; Adam Looney
    Abstract: Studies of risk in developing economies have focused on consumption fluctuations as a measure of the value of insurance. A common view in the literature is that the welfare costs of risk and benefits of social insurance are small if income shocks do not cause large consumption fluctuations. We present a simple model showing that this conclusion is incorrect if the consumption path is smooth because individuals are highly risk averse. Empirical studies find that many households in developing countries rely on inefficient methods to smooth consumption, suggesting that they are indeed quite risk averse. Hence, social safety nets may be valuable in low-income economies even when consumption is not very sensitive to shocks.
    JEL: H0
    Date: 2005–10
  3. By: David C. Grabowski; Jonathan Gruber
    Abstract: Nursing home expenditures are a rapidly growing share of national health care spending with the government functioning as the dominant payer of services. Public insurance for nursing home care is tightly targeted on income and assets, which imposes a major tax on savings; moreover, low state reimbursement for Medicaid patients has been shown to lower treatment quality, and bed supply constraints may deny access to needy individuals. However, expanding eligibility, increasing Medicaid reimbursement, or allowing more nursing home bed slots has the potential to induce more nursing home use, increasing the social costs of long term care. A problem in evaluating this tradeoff is that we know remarkably little about the effects of government policy on nursing home utilization. We attempt to address this shortcoming using multiple waves of the National Long-Term Care Survey, matched to changing state Medicaid rules for nursing home care. We find consistent evidence of no effect of Medicaid policies on nursing home utilization, suggesting that demand for nursing home care is relatively inelastic. From a policy perspective, this finding indicates that changes in overall Medicaid generosity will not have large effects on utilization.
    JEL: I11 I18
    Date: 2005–10
  4. By: Geert Bekaert; Eric Engstrom; Yuhang Xing
    Abstract: We identify the relative importance of changes in the conditional variance of fundamentals (which we call "uncertainty") and changes in risk aversion ("risk" for short) in the determination of the term structure, equity prices, and risk premiums. Theoretically, we introduce persistent time-varying uncertainty about the fundamentals in an external habit model. The model matches the dynamics of dividend and consumption growth, including their volatility dynamics and many salient asset market phenomena. While the variation in dividend yields and the equity risk premium is primarily driven by risk, uncertainty plays a large role in the term structure and is the driver of counter-cyclical volatility of asset returns.
    Date: 2005
  5. By: Werner Jammernegg (Vienna University of Economics and Business Administration, Department of Information Systems and Operations); Peter Kischka (University of Jena, Faculty of Economics)
    Abstract: We introduce a decision rule where the risk dimension is measured by the conditional value of risk. We characterize the risk attitudes implied by the decision rule in a way similar to the well known mean variance framework. We show that the rule is consistent with Yaaris dual theory for all risk attitudes. Finally a reformulation of the decision rule is presented which is based on two conditional expected values.
    Date: 2005–09–08
  6. By: Almuth Scholl
    Abstract: This paper analyzes the impact of limited enforceable international loans on international risk sharing and trade fluctuations in a two-country two-good endowment economy. Our specification of the punishment threat allows the exclusion from trade to last only finitely many periods and distinguishes between financial autarky and full autarky. Quantitative results show that limited enforceability substantially alters cross-country consumption correlations and the dynamics of net exports. In contrast to existing studies, risk sharing is low for large elasticities of substitution between the domestic and foreign goods. However, it remains challenging to explain the high volatility of the terms of trade empirically observed.
    JEL: E32 D52 F34 F41
    Date: 2002–06
  7. By: John Gibson (University of Canterbury); Sandra Barns; Michael Cameron; Steven Lim; Frank Scrimgeour; John Tressler
    Abstract: This paper presents estimates of the Value of Statistical Life (VSL) in rural Thailand using the contingent-valuation (CV) method. These estimates are applied to an economic analysis of landmine clearance. The estimated VSL of US$250,000 suggests that the value of lives saved from landmine clearance is at least an order of magnitude greater than the values used in existing studies.
    Keywords: Asia; Thailand; benefit-cost analysis; contingent valuation; landmines; value of statistical life
    JEL: J17 O22
    Date: 2005–04–01

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