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on Insurance Economics |
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Issue of 2006‒03‒18
nine papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| 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 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. |
| Keywords: | Debts, External ; Financial crises ; Insurance |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2006-05&r=ias |
| By: | CPB |
| Abstract: | This CPB Discussion Paper presents new estimates for the price elasticity of the residual demand for health insurance. This elasticity measures the loss in market share of a health insurer as a consequence of a unilateral increase in price, assuming other firms keep their prices constant. The main findings are as follows: the price elasticity of residual demand for social health insurance by enrollees was very low during the period 1996-2002. We find small but significant effects of the price of basic insurance but no robust effect of the price of supplementary insurance. Young enrollees are more price sensitive than older enrollees. However, these findings are conditional on the limited variation in price observed in our data. At larger price differentials, the elasticity may well be higher. This Discussion Paper is based on joint work of Machiel van Dijk, Marc Pomp, Rudy Douven (all three at CPB), Trea Laske-Aldershof, Erik Schut (both Erasmus University), Willem de Boer and Anne de Boo (Vektis). We would like to thank Marieke Smit (Vektis) for her help in getting this project off the ground. We would also like to thank Katie Carman (Tilburg University) for her comments on a previous draft of this paper. |
| Keywords: | Health insurance; price elasticity |
| JEL: | D12 I11 I18 L11 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:56&r=ias |
| By: | Kevin Lang (Department of Economics, Boston University); Hong Kang (Department of Economics, Boston University) |
| Abstract: | We develop a model in which firms hire heterogeneous workers but must offer all workers insurance benefits under similar terms. In equilibrium, some firms offer free health insurance, some require an employee premium payment and some do not offer insurance. Making the employee contribution pre-tax lowers the cost to workers of a given employee premium and encourages more firms to charge. This increases the offer rate, lowers the take-up rate, increases (decreases) coverage among high (low) demand groups, with an indeterminate overall effect. We test the model using the expansion of section 125 plans between 1987 and 1996. The results are generally supportive. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:bos:wpaper:wp2005-011&r=ias |
| By: | A. Chaudhuri; L. Gangadharan; Pushkar Maitra |
| Abstract: | We study the relationship between group size and the extent of risk sharing in an insurance game played over a number of periods with random idiosyncratic and aggregate shocks to income in each period. Risk sharing is attained via agents that receive a high endowment in one period making unilateral transfers to agents that receive a low endowment in that period. The complete risk sharing allocation is for all agents to place their endowments in a common pool, which is then shared equally among members of the group in every period. Theoretically, the larger the group size, the smaller the per capita dispersion in consumption and greater is the potential value of insurance. Field evidence however suggests that smaller groups do better than larger groups as far as risk sharing is concerned. Results from our experiments show that the extent of mutual insurance is significantly higher in smaller groups, though contributions to the pool are never close to what complete risk sharing requires. |
| Keywords: | Reciprocity, Risk Sharing, Group Size, Experiments |
| JEL: | O12 C92 D81 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:955&r=ias |
| By: | J. Hirschberg; J. Lye; D.J. Slottje |
| Abstract: | We study the relationship between group size and the extent of risk sharing in an insurance game played over a number of periods with random idiosyncratic and aggregate shocks to income in each period. Risk sharing is attained via agents that receive a high endowment in one period making unilateral transfers to agents that receive a low endowment in that period. The complete risk sharing allocation is for all agents to place their endowments in a common pool, which is then shared equally among members of the group in every period. Theoretically, the larger the group size, the smaller the per capita dispersion in consumption and greater is the potential value of insurance. Field evidence however suggests that smaller groups do better than larger groups as far as risk sharing is concerned. Results from our experiments show that the extent of mutual insurance is significantly higher in smaller groups, though contributions to the pool are never close to what complete risk sharing requires. |
| Keywords: | Reciprocity Risk Sharing Group Size Experiments |
| JEL: | O12 C92 D81 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:954&r=ias |
| By: | A. Lans Bovenberg (Tilburg University); Peter Birch Sørensen (Department of Economics, University of Copenhagen) |
| Abstract: | Advances in information technology have improved the administrative feasibility of redistribution based on lifetime earnings recorded at the time of retirement. We study optimal lifetime income taxation and social insurance in an economy in which redistributive taxation and social insurance serve to insure (ex ante) against skill heterogeneity as well as disability risk. Optimal disability benefits rise with previous earnings so that public transfers depend not only on current earnings but also on earnings in the past. Hence, lifetime taxation rather than annual taxation is optimal. The optimal tax-transfer system does not provide full disability insurance. By offering imperfect insurance and structuring disability benefits so as to enable workers to insure against disability by working harder, social insurance is designed to offset the distortionary impact of the redistributive labor income tax on labor supply. |
| Keywords: | optimal lifetime income taxation; optimal social insurance |
| JEL: | H21 H55 |
| URL: | http://d.repec.org/n?u=RePEc:kud:epruwp:06-01&r=ias |
| By: | Randall P. Ellis (Department of Economics, Boston University); Elizabeth Savage (Centre for Health Economics Research and Evaluation, University of Technology Sydney) |
| Abstract: | We develop and estimate a model of individual decisions to enrol in private health insurance in Australia in order to understand the effect of three specific government programs that changed the structure of premiums facing consumers. The three reforms encompass incomebased subsidies to purchasing health insurance, an across-the-board 30% reduction in premiums, and a selective age-based increase in premiums for new entrants. Our model of the timing of the insurance choice enables us to understand how particular aspects of the reforms affected the age and income distribution of those with private cover. Together the reforms achieved significant increases in enrolment and a reduction in the average age of enrolees over a five year period. Despite expectations that the more favourable selection resulting from the public subsidies would cause insurance premiums to stabilize, or even to fall, they have continued to increase at a rate well in excess of the CPI. Understanding how changes in enrolment are related to family characteristics, and the impact of the insurance reforms on enrolment, is an important policy issue both in Australia and overseas. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:bos:wpaper:wp2005-020&r=ias |
| By: | Anna Rita Bacinello (Dipartimento di Matematica Applicata alle Scienze Economiche, Statistiche ed Attuariali, University of Trieste) |
| Abstract: | We propose a model for pricing a unit-linked life insurance policy embedding a surrender option. We consider both single and annual premium contracts. First we analyse a quite general contract, for which we obtain a backward recursive valuation formula based on the Cox, Ross and Rubinstein (1979) binomial model. Then we concentrate upon a particular case, that is the famous model with exogenous minimum guarantees. In this case we extend our previous analysis in order to take into account the possibility that the guarantees at death or maturity and the surrender values are endogenously determined, and provide necessary and sucient conditions for the premiums to be well defined. |
| Keywords: | surrender option, equity-linked life insurance, exogenous and endogenous guarantees, single and annual premium contracts, binomial trees |
| JEL: | C61 G13 G22 G23 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:crp:wpaper:39&r=ias |
| By: | Robert Shimer; Iván Werning |
| Abstract: | We study the optimal design of unemployment insurance for workers sampling job opportunities over time. We focus on the optimal timing of benefits and the desirability of allowing workers to freely access a riskless asset. When workers have constant absolute risk aversion preferences, it is optimal to use a very simple policy: a constant benefit during unemployment, a constant tax during employment that does not depend on the duration of the spell, and free access to savings using a riskless asset. Away from this benchmark, for constant relative risk aversion preferences, the welfare gains of more elaborate policies are minuscule. Our results highlight two largely distinct roles for policy toward the unemployed: (a) ensuring workers have sufficient liquidity to smooth their consumption; and (b) providing unemployment benefits that serve as insurance against the uncertain duration of unemployment spells. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:366&r=ias |