nep-ias New Economics Papers
on Insurance Economics
Issue of 2006‒03‒05
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. The Impact of Explicit Deposit Insurance on Market Discipline By Vasso Ioannidou; Jan de Dreu
  2. Does Insurance Promote Economic Growth? Evidence from the UK By Maurice Kugler; Reza Ofoghi
  3. Screening Disability Insurance Applications By Philip de Jong; Maarten Lindeboom; Bas van der Klaauw
  4. The Welfare Effects of Discrimination in Insurance By Rob van der Noll
  5. Job Security and Work Absence: Evidence from a Natural Experiment By Lindbeck, Assar; Palme, Mårten; Persson, Mats
  6. Aggregate Mortality Risk and the Insurance Value of Annuities By Juha Alho; Niku Määttänen

  1. By: Vasso Ioannidou; Jan de Dreu
    Abstract: This paper studies the impact of explicit deposit insurance on market discipline in a framework that resembles a natural experiment. We improve upon previous studies by exploiting a unique combination of country-specific circumstances, design features, and data availability that allows us to distinguish between demand and supply effects. We show that deposit insurance causes a significant reduction in market discipline. We also show that the effect of deposit insurance depends on the coverage rate. When the coverage rate is more than 60 percent, market discipline is significantly reduced and it is completely eliminated when the coverage rate reaches 100 percent. Our results also suggest that most market discipline comes from large depositors and that the introduction of deposit insurance affected mainly those who were already active in imposing discipline. Our findings emphasize the need for binding coverage limits per depositor, high degrees of co- insurance, and "tailor made" deposit insurance systems that preserve the incentives of a critical mass of depositors that are willing and able to perform this function.
    Keywords: Market Discipline; Deposit Insurance; Deposit Insurance Coverage.
    JEL: F30 F41 G14 G21 G28
    Date: 2006–02
  2. By: Maurice Kugler (University of Southampton); Reza Ofoghi (University of Southampton)
    Date: 2005–09–03
  3. By: Philip de Jong (Wilms & Goudriaan Public Economics BV, and Universiteit van Amsterdam); Maarten Lindeboom (Vrije Universiteit Amsterdam, IZA, HEB, and Netspar); Bas van der Klaauw (Vrije Universiteit Amsterdam, SCHOLAR, IFAU, IZA, and CEPR)
    Abstract: This paper investigates the effects of intensified screening of disability insurance benefit applications. A large-scale experiment was setup where in 2 of the 26 Dutch regions case workers of the disability insurance administration were instructed to screen applications more intense. The empirical results show that intense screening reduces long-term sickness absenteeism and disability insurance applications. This provides evidence both for direct effects of the more intensive screening on work resumption during sickness absenteeism and for self-screening by potential disability insurance applicants. We do not find any spillover effects to the inflow into unemployment insurance. A cost-benefit analysis shows that the costs of the intensified screening are only a small fraction of its benefits.
    Keywords: disability insurance; sickness absenteeism; policy evaluation; self-screening; experiment
    JEL: J28 J65
    Date: 2006–02–14
  4. By: Rob van der Noll (CPB Netherlands Bureau for Economic Policy, and Erasmus Universiteit Rotterdam)
    Abstract: We study an insurance model characterized by a continuum of risk types, private information and a competitive supply side. We use the model to investigate the welfare effects of discrimination (also known as risk selection). We postulate that a test is available that determines whether an applicant's risk exceeds a treshold. Excluding the highest risks softens adverse selection, but constitutes a welfare loss for the high risks. In contrast to a lemons market intuition, we find that aggregate surplus decreases when risk aversion is high. When risk aversion is low however, discrimination increases aggregate surplus.
    Keywords: insurance; adverse selection; risk selection; discrimination
    JEL: D82 K29
    Date: 2006–01–20
  5. By: Lindbeck, Assar (Institute for International Economic Studies, Stockholm University); Palme, Mårten (Dept. of Economics, Stockholm University); Persson, Mats (Institute for International Economic Studies, Stockholm University)
    Abstract: We analyze the consequences for sickness absence of a selective softening of job security legislation for small firms in Sweden in 2001. According to our differences-in-difference estimates, aggregate absence in these firms fell by 0.2-0.3 days per year. This aggregate net figure hides important effects on different groups of employees. Workers remaining in the reform firms after the reform reduced their absence by about one day. People with a high absence record tended to leave reform firms, but these firms also became less reluctant to hire people with a record of high absence.
    Keywords: Seniority rules; sick pay insurance; firing costs; moral hazard
    JEL: H53 I38 J22 J50 M51
    Date: 2006–02–24
  6. By: Juha Alho; Niku Määttänen
    Abstract: Future improvements in mortality are difficult to forecast. In this paper, we incorporate uncertainty about future mortality, or aggregate mortality risk, into an otherwise standard life cycle model with an intertemporal consumption-savings decision. The aggregate mortality process is calibrated based on European mortality series. We use the model to quantify the welfare cost of aggregate mortality risk and the extent to which individuals can insure themselves against it using life annuities with a constant payout stream.
    Keywords: annuities, aggregate mortality risk
    JEL: G22 D14
    Date: 2006–02–22

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