nep-ias New Economics Papers
on Insurance Economics
Issue of 2006‒11‒18
nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. When Health Care Insurance Does Not Make A Difference – The Case of Health Care ‘Made in China’ By Hendrik P. van Dalen
  2. Differentiated Annuities in a Pooling Equilibrium By Eytan Sheshinski
  3. Health Insurance as a Two-Part Pricing Contract By Darius Lakdawalla; Neeraj Sood
  4. On the characterization of convex premium principles By Marta Cardin; Graziella Pacelli
  5. Deposit insurance and banking reform in Russia By Camara, Modibo K.; Montes-Negret, Fernando
  6. Is Group Lending A Good Enforcement Scheme for Achieving High Repayment Rates?: Evidence from Field Experiments in Vietnam By Kono, Hisaki
  7. Optimum Commodity Taxation in Pooling Equilibria By Eytan Sheshinski
  8. An essay on economic reforms and social change in China By Lindbeck, Assar
  9. Physician Quality and Health Care for the Poor and Uninsured By Lara Bryant; Sharmila Vishwasrao

  1. By: Hendrik P. van Dalen (Erasmus Universiteit Rotterdam)
    Abstract: Does medical insurance affect health care demand and in the end contribute to improvements in the health status? Evidence for China for the year 2004, by means of the China Health and Nutrition Survey (CHNS), shows that health insurance does not affect health care demand in a significant manner. Counterfactuals suggest that full insurance coverage of the Chinese population will not radically change the health care decisions and may even enlarge the perverse effects of today’s health care system: insured persons are more likely to fall back on self-care when they are injured or ill than on the care of a local clinic. This effect is particularly strong in urban areas. In case of a severe injury hospital consultation is preferred to local clinic or self-care by most people, but still a substantial percentage (20 percent) resorts to self-care or ignores the illness. The high level of out-of-pocket expenses paid by both insured and uninsured patients lies at t! he root of this problem. Insurance does not offer real protection against unpredictable high health care expenditures and can lead people into a position of long-term poverty or serious liquidity problems.
    Keywords: health insurance; poverty; China; health care; market failure
    JEL: D12 H51 I11 I18 P36
    Date: 2006–10–11
  2. By: Eytan Sheshinski
    Abstract: Regular annuities provide payment for the duration of an owner’s lifetime. Period-Certain annuities provide additional payment after death to a beneficiary provided the insured dies within a certain period after annuitization. It has been argued that the bequest option offered by the latter is dominated by life insurance which provides non-random bequests. This is correct if competitive annuity and life insurance markets have full information about individual longevities. In contrast, this paper shows that when individual longevities are private information, a competitive pooling equilibrium which offers annuities at common prices to all individuals may have positive amounts of both types of annuities in addition to life insurance. In this equilibrium, individuals self-select the types of annuities that they purchase according to their longevity prospects. The break-even price of each type of annuity reflects the average longevity of its buyers. The broad conclusion that emerges from this paper is that adverse-selection due to asymmetric information is reflected not only in the amounts of insurance purchased but, importantly, also in the choice of insurance products suitable for different individual characteristics. This conclusion is supported by recent empirical work about the UK annuity market (Finkelstein and Poterba (2004)).
    Keywords: annuities, period-certain annuities, pooling equilibrium
    JEL: D11 D82
    Date: 2006
  3. By: Darius Lakdawalla; Neeraj Sood
    Abstract: Monopolies appear throughout health care markets, as a result of patents, limits to the extent of the market, or the presence of unique inputs and skills. In the health care industry, however, the deadweight costs of monopoly may be small or even absent. Health insurance, frequently implemented as an ex ante premium coupled with an ex post co-payment per unit consumed, effectively operates as a two-part pricing contract. This allows monopolists to extract consumer surplus without inefficiently constraining quantity. This view of health insurance contracts has several implications: (1) Low ex post copayments to insured consumers substantially reduce deadweight losses from medical care monopolies -- we calculate, for instance, that the presence of health insurance lowers monopoly loss in the US pharmaceutical market by 82 percent; (2) Price regulation or break-up of health care monopolies may be inferior to laissez-faire or simple redistribution of monopoly profits; and (3) Promoting efficiency in the health insurance market can reduce static losses in the goods market while improving the dynamic efficiency of innovation.
    JEL: D42 I11
    Date: 2006–11
  4. By: Marta Cardin (Department of Applied Mathematics, University of Venice); Graziella Pacelli (Department of Social Sciences, University of Ancona)
    Abstract: In actuarial literature the properties of risk measures or insurance premium principles have been extensively studied . We propose a characterization of a particular class of coherent risk measures defined in [1]. The considered premium principles are obtained by expansion of TVar measures, consequently they look like very interesting in insurance pricing where TVar measures is frequently used to value tail risks.
    Keywords: risk measures, premium principles, capacity, distortion function, TVar
    JEL: D81
    Date: 2006
  5. By: Camara, Modibo K.; Montes-Negret, Fernando
    Abstract: The objective of this paper is not to review the pros and cons of deposit insurance systems, but to focus, rather narrowly, on the recent adoption of a deposit insurance system (DIS) in Russia, the rationale offered, and the potential impact it might have on the stability and development of the Russian banking system. An attempt is made to draw some lessons from the implementation experience in Russia. The paper starts with a brief description of the Russian DIS, followed by an overview of the banking system ' s structure and some observations on the sequencing followed for adopting the DIS and the political economy of its adoption. It concludes with a discussion of areas requiring attention.
    Keywords: Banks & Banking Reform,Financial Intermediation,Financial Crisis Management & Restructuring,Corporate Law,Insurance & Risk Mitigation
    Date: 2006–11–01
  6. By: Kono, Hisaki
    Abstract: Microfinance institutions employ various kinds of incentive schemes but estimating the effect of each scheme is not easy due to endogeneity bias. We conducted field experiments in Vietnam to capture the role of joint liability, monitoring, cross-reporting, social sanctions, communication and group formation in borrowers’ repayment behavior. We find that joint liability contracts cause serious free-riding problems, inducing strategic default and lowering repayment rates. When group members observe each others’ investment returns, participants are more likely to choose strategic default. Even after introducing a cross-reporting system and/or penalties among borrowers, the default rates and the ratios of participants who chose strategic default under joint liability are still higher than those under individual lending. We also find that joint liability lending often failed to induce mutual insurance among borrowers. Those who had been helped or who had repaid a little in the previous round were more likely to default strategically and repay a little again in the current round and those who paid large amounts were always the same individuals.
    Keywords: Microfinance, Joint liability, Free-riding, Vietnam
    JEL: F15 O14 O30
    Date: 2006–05
  7. By: Eytan Sheshinski
    Abstract: This paper extends the standard model of optimum commodity taxation (Ramsey (1927) and Diamond-Mirrlees (1971)) to a competitive economy in which some markets are inefficient due to asymmetric information. As in most insurance markets, consumers impose varying costs on suppliers but firms cannot associate costs to customers and consequently all are charged equal prices. In a competitive pooling equilibrium, the price of each good is equal to average marginal costs weighted by equilibrium quantities. We derive modified Ramsey-Boiteux Conditions for optimum taxes in such an economy and show that they include general-equilibrium effects which reflect the initial deviations of producer prices from marginal costs, and the response of equilibrium prices to the taxes levied. It is shown that condition on the monotonicity of demand elasticities enables to sign the deviations from the standard formula. The general analysis is applied to the optimum taxation of annuities and life insurance.
    Keywords: asymmetric information, pooling equilibrium, Ramsey-Boiteux Conditions, annuities
    JEL: D43 H21
    Date: 2006
  8. By: Lindbeck, Assar
    Abstract: The author applies a systems-oriented " holistic " approach to China ' s radical economic reforms during the past quarter of a century. He characterizes China ' s economic reforms in terms of a multidimensional classification of economic systems. When looking at the economic consequences of China ' s change of economic system, he deals with both the impressive growth performance and its economic costs. The author also studies the consequences of the economic reforms for the previous social arrangements in the country, which were tied to individual work units-agriculture communes, collective firms, and state-owned enterprises. He continues with the social development during the reform period, reflecting a complex mix of social advances, mainly in terms of poverty reduction, and regresses for large population groups in terms of income security and human services, such as education and, in particular, health care. Next, the author discusses China ' s future policy options in the social field, whereby he draws heavily on relevant experiences in industrial countries over the years. The future options are classified into three broad categories: policies influencing the level and distribution of factor income, income transfers including social insurance, and the provision of human services.
    Keywords: Economic Theory & Research,Banks & Banking Reform,Investment and Investment Climate,Privatization,Economic Systems
    Date: 2006–11–01
  9. By: Lara Bryant (Department of Economics, College of Business, Florida Atlantic University); Sharmila Vishwasrao (Department of Economics, College of Business, Florida Atlantic University)
    Abstract: Many studies have documented adverse health outcomes for uninsured patients in U.S. hospitals. These poor outcomes have been attributed to their health status and limited access to healthcare. A measure of treatment that remains unexplored is the quality of the physicians treating uninsured patients. We examine whether uninsured and poor patients are treated by lower quality physicians with four measures of physician quality. Using a hospital fixed-effects model, we find that cardiac patients are matched to physician quality based on their ability to pay. Even after controlling for average physician quality within a hospital and patient characteristics, we find that uninsured and Medicaid patients are generally treated by lower quality physicians. We also find that while for-profit and not-for-profit hospitals treat the uninsured with lower quality physicians, government hospitals do not. However, there is evidence that hospitals of all ownership types treat Medicaid patients with lower quality physicians.
    Keywords: Uninsured, Medicaid, Physician Quality, Hospital Ownership
    JEL: I11 I18 J18
    Date: 2006–07

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