nep-ias New Economics Papers
on Insurance Economics
Issue of 2006‒09‒11
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Competitive Screening in Insurance Markets with Endogenous Labor Supply By Nick Netzer; Florian Scheuer
  2. Risico en Rendement in Balans voor Verzekeraars By Pelsser, A.A.J.
  3. Financial Regulation: Emerging From The Shadows By Benink, H.A.
  4. Disability insurance and unemployment insurance as substitute pathways By Pierre Koning; Daniël van Vuuren
  5. Hidden unemployment in disability insurance in the Netherlands; an empirical analysis based on employer data By Pierre Koning; Daniël van Vuuren
  6. Income Risk and Health By Timothy Halliday

  1. By: Nick Netzer; Florian Scheuer
    Abstract: We examine equilibria in competitive insurance markets when individuals take unobservable labor supply decisions. Precautionary labor motives intro-duce countervailing incentives in the insurance market, and equilibria with positive profits can occur even in the standard case in which individuals exogenously differ in risk only. We then extend the model to allow for both privately known risks and labor productivities. This endogenously introduces two-dimensional heterogeneity in the insurance market since precautionary labor effects lead to differences in income and hence risk aversion. Under these circumstances, separating and pooling equilibria exist, which generally differ from those with exogenous two-dimensional heterogeneity considered by the existing literature. Notably, in contrast to standard screening models, profits may be increasing with insurance coverage, and the correlation between risk and coverage can be zero or negative in equilibrium, a phenomenon frequently observed in empirical studies.
    Keywords: Insurance markets, adverse selection, precautionary labor
    JEL: D82 G22 J22
    Date: 2006
  2. By: Pelsser, A.A.J. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: In this inaugural address Professor Pelsser investigates how one can strike a balance between investmens with a high expected return and high risk (e.g. stocks) versus low-risk investments with a low return (e.g.bonds). Using an example of a life-insurance company he shows in this address how one can employ optimisation-techniques to make a trade-off between the desire to find an investment return as high as possible under the constraint that the insurance company should be able to meet its obligations to the policyholders under all economic circumstances.
    Keywords: asset liability management;business cinance, corporation finance;corporate finance and governance;financial management;investments for insurance companies;investment policy;
    Date: 2003–05–02
  3. By: Benink, H.A. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Keywords: regulatory;incentives;shadow committee;banking;subordinated debt;deposit insurance;Neo-Austrian finance;internal ratings;market discipline;capital requirements;Basel Committee;
    Date: 2001–06–15
  4. By: Pierre Koning; Daniël van Vuuren
    Abstract: In this paper, we estimate the degree of substitution between enrolment into Disability Insurance (DI) and Unemployment Insurance (UI) in the Netherlands. Starting in the 1990s many policy measures aimed at reducing DI enrolment, and increase labour force participation. We quantify whether these policy measures have led to a reduction in hidden unemployment in DI. A side effect of the reforms may be increased pressure on UI. Therefore, we simultaneously estimate reverse substitution, that is, hidden disability in UI. To this end, we employ a sample of firms in the Dutch AVO database from the period 1993-2002. Using instrumental variables in a bivariate Tobit specification, we identify the hidden components in both respective schemes. The estimation results indicate that about 3% of all dismissals took place through DI, which implies that about one quarter of the DI enrolments observed in our sample in fact consists of hidden unemployment. We find no evidence for reverse substitution of disabled persons ending up in UI.
    Keywords: Firm behaviour; social security; disability; employment determination
    JEL: D21 H55 I12 J2
    Date: 2006–08
  5. By: Pierre Koning; Daniël van Vuuren
    Abstract: In this paper, we construct and estimate a (semi-) structural model, so as to uncover the fraction of hidden unemployment in the Disability Insurance (DI) enrolment rate. For this purpose, we use longitudinal administrative data of Dutch employers for 1994-2003. We find the (average) fraction of hidden unemployment in DI enrolment to amount to about 11%. This corresponds to 2.6% of the ‘true’ unemployment insurance (UI) enrolment rate of employers. Over the years, we observe a strong decrease in this fraction, from 5.4% in 1995, to 0.7% in 2003. In addition, our estimates suggest that most of correlation that is observed between the UI and DI enrolment rates can be explained by substitution effects, and not by ‘true’ correlation between the schemes that is exogenous to the firm. In the model, the fraction of hidden unemployment in the DI scheme is (over-)identified from various restrictions imposed by the data. First, identification follows from exclusion restrictions obtained from the coefficient estimates of variables that are assumed to influence the UI enrolment rate only. For this purpose, we use information on the wage distribution of workers employed at the firms in our sample, and sectoral growth rates. Second, identification of substitution effects follows from the observed correlation between both enrolment rates.
    Keywords: Firm behaviour; social security; disability; employment determination
    JEL: D21 H55 I12 J2
    Date: 2006–08
  6. By: Timothy Halliday (Department of Economics, University of Hawaii at Manoa; John A. Burns School of Medicine, University of Hawaii at Manoa)
    Abstract: In this paper, we investigate the impact of aggregate and idiosyncratic economic shocks on health using data on self-reported health status and mortality from the Panel Study of Income Dynamics. We document a large correlation between poor macroeconomic conditions and mortality for working-aged men. This correlation is robust to controls for baseline health which mitigates concerns that the correlation is the result of selection. There is no relationship between macroeconomic conditions and mortality for women. To better understand how much of this correlation is the result of a causal impact of income shocks on health, we use methods from the literature on dynamic panel data models. Doing this, we find evidence that, on average, adverse income shocks negatively impact health outcomes. These effects are dominated by transitions into the very bottom of the earnings distribution.
    Keywords: Gradient, Recessions, Health, Dynamic Panel Data Models
    JEL: I0 I12 J1
    Date: 2006

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