nep-ias New Economics Papers
on Insurance Economics
Issue of 2006‒08‒05
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Sovereign Insurance and Program Design: What is Optimal for the Sovereign? By Miguel Messmacher
  2. "Policy Options for Financing the Future Health and Long-term Care Costs in Japan" By Tadashi Fukui; Yasushi Iwamoto
  3. Eliciting the Demand for Long Term Care Coverage: A Discrete Choice Modelling Analysis By Rinaldo Brau; Matteo Lippi Bruni
  4. Annuity markets in Chile : competition, regulation - and myopia ? By Walker, Eduardo
  5. Sudden Stops and IMF-Supported Programs By Ashoka Mody; Poonam Gupta; Barry J. Eichengreen
  6. Is One Watchdog Better Than Three? International Experience with Integrated Financial Sector Supervision By Richard Podpiera; Martin Cihák
  7. Quantifying the value of U.S. tariff preferences for developing countries By Dean, Judith M.; Wainio, John
  8. Microfinance games By Gine, Xavier; Jakiela, Pamela; Karlan, Dean; Morduch, Jonathan

  1. By: Miguel Messmacher
    Abstract: The design of the optimal sovereign insurance contract is analyzed when: the sovereign chooses the contract; effort is not contractible; shocks are of uncertain magnitude; the sovereign can save; and the sovereign can default. Under these conditions: i) an ex ante premium leads to higher coverage; ii) the premium increases with the sovereign's incentive to take risks; iii) a deductible is chosen to limit moral hazard; iv) the deductible-to-support ratio is decreasing with the size of the realized shock; and v) the change in the choice of savings when insurance is available is ambiguous, as there is a trade-off between inducing higher effort and increasing the likelihood of default.
    Keywords: Insurance , Fund , Financial risk ,
    Date: 2006–03–21
  2. By: Tadashi Fukui (Faculty of Economics, Kyoto Sangyo University); Yasushi Iwamoto (Faculty of Economics, University of Tokyo)
    Abstract: As the Japanese population structure changes, health care and long-term care costs will steadily increase. The current style of financing (pay-as-you-go) will create a large increase in future burden of these costs. This paper studies an alternative policy that prefunds the social insurance benefits for the elderly. During a transition process, the proposed scheme maintains a higher contribution rate in order to accumulate sufficient funds. Under our baseline scenario, the sum of the contribution rates toward health insurance and long-term care insurance increases from 5.06 percent of earnings to 12.41 percent of the same. The rate of increase in overall burdens, including taxes and subsidies, is 63 percent. Our sensitivity analysis has shown that the quantitative implications of the increase in total burdens depend on social cost scenarios, the labor force, and the interest rate. However, labor force scenarios do not have a considerable impact on the rate of burden. As against this, the setting of social costs has a significant impact on the same. Even under the most optimistic scenario, the rate of increase in total burden is 34 percent. Even though we cannot predict the exact amount of the necessary contribution rate that is capable enough to transfer the funded system, what we are sure of is that a significant increase in the contribution rate is inevitable.
    Date: 2006–07
  3. By: Rinaldo Brau (University of Cagliari); Matteo Lippi Bruni (University of Bologna)
    Abstract: We evaluate the demand for long term care (LTC) insurance prospects in a stated preference context, by means of the results of a choice experiment carried out on a representative sample of the Emilia-Romagna population. Choice modelling techniques have not been used yet for studying the demand for LTC services. In this paper these methods are first of all used in order to assess the relative importance of the characteristics which define some hypothetical insurance programmes and to elicit the willingness to pay for some LTC coverage prospects. Moreover, thanks to the application of a nested logit specification with ‘partial degeneracy’, we are able to model the determinants of the preference for status quo situations where no systematic cover for LTC exists. On the basis of this empirical model, we test for the effects of a series of socio-demographic variables as well as personal and household health state indicators.
    Keywords: Health Insurance, Long Term Care, Choice Experiments, Nested Logit Models
    JEL: I11 I18 H40 C25
    Date: 2006–05
  4. By: Walker, Eduardo
    Abstract: The author studies annuity rates in Chile and relates them with industry competition. He finds (1) that annuity insurance companies paying higher broker commissions paid lower annuity rates; and (2) a structural break of the long-run elasticity of annuity rates to the risk-free rate in 2001. Moreover, this structural break coincided with the submission of a new draft pension law proposing greater transparency in annuity markets and a generalized drop in broker commissions. The high commissions charged in the 1990s were partly returned to annuitants as informal (and illegal) cash rebates. Myopic pensioners preferred cash rebates over present values. Thus, the legal threat caused the drop in broker commissions, reduced the illegal practice of cash rebates, increased competition by way of annuity rates, and raised the long-run elasticity to one.
    Keywords: Insurance&Risk Mitigation,Economic Theory&Research,Pensions&Retirement Systems,Investment and Investment Climate,Non Bank Financial Institutions
    Date: 2006–08–01
  5. By: Ashoka Mody; Poonam Gupta; Barry J. Eichengreen
    Abstract: Could a high-access, quick-disbursing "insurance facility" in the IMF help to reduce the incidence of sharp interruptions in capital flows ("sudden stops")? We contribute to the debate around this question by analyzing the impact of conventional IMF-supported programs on the incidence of sudden stops. Correcting for the non-random assignment of programs, we find that sudden stops are fewer and generally less severe when an IMF arrangement exists and that this form of "insurance" works best for countries with strong fundamentals. In contrast there is no evidence that a Fund-supported program attenuates the output effects of capital account reversals if these nonetheless occur.
    Keywords: Fund-supported adjustment programs , Insurance , Capital flows , Capital account ,
    Date: 2006–04–28
  6. By: Richard Podpiera; Martin Cihák
    Abstract: Over the past two decades, there has been a clear trend toward integrating the regulation and supervision of banks, nonbank financial institutions, and securities markets. This paper reviews the international experience with integrated supervision. We survey the theoretical arguments for and against the integrated supervisory model, and use data on compliance with international standards to assess the validity of some of these arguments. We find that (i) full integration is associated with higher quality of supervision in insurance and securities and greater consistency of supervision across sectors, after controlling for the level of development; and (ii) fully integrated supervision is not associated with a significant reduction in supervisory staff.
    Keywords: Financial sector , Bank regulations , Bank supervision , Insurance regulations , Insurance supervision , Securities regulations ,
    Date: 2006–03–15
  7. By: Dean, Judith M.; Wainio, John
    Abstract: In recent debates, trade preference erosion has been viewed by some as damaging to developing countries, and by others as insignificant, except in a few cases. But little data have been available to back either view. The objective of this paper is to improve our measures of the size, utilization, and value of all U.S. nonreciprocal trade preference programs in order to shed light on this debate. Highly disaggregated data are used to quantify the margins, coverage, utilization, and value of agricultural and nonagricultural tariff preferences for all beneficiary countries in the U.S. regional programs and in the Generalized System ofPreferences. Results show that U.S. regional tariff preference programs are generally characterized by high coverage of beneficiary countries'exports, high utilization by beneficiary countries, and low tariff preference margins (except on apparel). For 29 countries, the value of U.S. tariff preferences was 5 percent or more of 2003 dutiable exports to the United States, even after incorporating actual utilization. Most of this value is attributable to nonagricultural tariff preferences, and to apparel preferences in particular. These results suggest that preference erosion may be significant for more countries than many had thought.
    Keywords: Free Trade,Trade Policy,Insurance&Risk Mitigation,Economic Theory&Research,Agribusiness&Markets
    Date: 2006–08–01
  8. By: Gine, Xavier; Jakiela, Pamela; Karlan, Dean; Morduch, Jonathan
    Abstract: Microfinance has been heralded as an effective way to address imperfections in credit markets. But from a theoretical perspective, the success of microfinance contracts has puzzling elements. In particular, the group-based mechanisms often employed are vulnerable to free-riding and collusion, although they can also reduce moral hazard and improve selection. The authors created an experimental economics laboratory in a large urban market in Lima, Peru and over seven months conducted 11 different games that allow them to unpack microfinance mechanisms in a systematic way. They find that risk-taking broadly conforms to predicted patterns, but that behavior is safer than optimal. The results help to explain why pioneering microfinance institutions have been moving away from group-based contracts.
    Keywords: Banks & Banking Reform,Insurance & Risk Mitigation,Financial Intermediation,Social Accountability,Civic Participation and Corporate Governance
    Date: 2006–07–01

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