nep-ias New Economics Papers
on Insurance Economics
Issue of 2006‒03‒25
three papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Health plan pricing behaviour and managed competition. By Rudy Douven; Erik Schut
  2. Differentiability of the Efficient Frontier when Commitment to Risk Sharing is Limited By Thorsten Koeppl
  3. Optimal Dynamic Risk Sharing when Enforcement is a Decision Variable By Thorsten Koeppl

  1. By: Rudy Douven; Erik Schut
    Abstract: In the Dutch social health insurance scheme, health plans operate in a managed competition framework. Essential features of this framework are risk adjustment, open enrolment and community rating. The objective is to study how health plans determine their community rated premiums. Using a panel data set for all health plans operating in the Dutch social health insurance market over the period 1996-2004, we estimate a premium model to determine which factors explain the price setting behaviour of health plans. Our empirical results indicate that competition did not play a major role in premium setting by health plans. We find that financial stability rather than profit maximisation offers the best explanation for health plan pricing behaviour. The forecast of next year's health-care expenditure by the government and the adjusted forecast by the insurers' association play a major role in health plans' pricing decisions. The introduction of a national health insurance scheme in 2006 urged all citizens to reconsider their health plan choice. The threat of losing customers had a profound impact on health plans' pricing behaviour. In sharp contrast to the period 1996-2005, in 2006 competition seems to play a dominant role in insurers' pricing decisions. Whether this will be a temporary or a lasting phenomenon is hard to predict.
    Keywords: Managed competition; Community rating; Health insurance; Health plan choice
    JEL: I11 I18 L11 D41
    Date: 2006–03
  2. By: Thorsten Koeppl (Department of Economics, Queen's University)
    Abstract: This paper shows that the value function describing efficient risk sharing with limited commitment is not necessarily differentiable everywhere. We link differentiability of the value function to history dependence of efficient allocations and provide sufficient conditions for both properties.
    Keywords: Risk Sharing, Limited Commitment, Differentiability of Efficient Frontier
    JEL: C61 E21
    Date: 2004–12
  3. By: Thorsten Koeppl (Department of Economics, Queen's University)
    Abstract: Societies provide institutions that are costly to set up, but able to enforce long-run relationships. We study the optimal decision problem of using self-governance for risk sharing or governance through enforcement provided by these institutions. Third-party enforcement is modelled as a costly technology that consumes resources, but permits the punishment of agents who deviate from ex-ante specified allocations. We show that it is optimal to employ the technology whenever commitment problems prevent first-best risk sharing, but never optimal to provide incentives exclusively via this technology. Commitment problems then persist and the optimal incentive structure changes dynamically over time with third-party enforcement monotonically increasing in the relative inequality between agents.
    Keywords: Limited Commitment, Risk Sharing, Third-party Enforcement
    JEL: C73 D60 D91 K49
    Date: 2005–01

This nep-ias issue is ©2006 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.