nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒01‒02
twelve papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Health Insurance for the poor in India: An analytical study By Rajeev Ahuja
  2. Micro-Insurance in India: Trends and strategies for further extension By Rajeev Ahuja; Basudeb Guha-Khasnobis
  3. Unemployment insurance and the uninsured By Tali Regev
  4. Heterogeneity of Preferences, Limited Commitment and Coalitions: Empirical Evidence on the Limits to Risk Sharing in Rural Pakistan By Dubois, Pierre
  5. Financial Incentives and the Timing of Retirement: Evidence from Switzerland By Barbara Hanel; Regina T. Riphahn
  6. Valuing Protection against Low Probability, High Loss Risks: Experimental Evidence By Andrea Morone; Ozlem Ozdemir
  7. Activation Policies in Germany: From Status Protection to Basic Income Support By Werner Eichhorst; Maria Grienberger-Zingerle; Regina Konle-Seidl
  8. Unemployment Insurance, Unemployment Durations and Re-employment Wages By Brian McCall; Wei Chi
  9. The Dynamic Effects of an Earnings Subsidy for Long-Term Welfare Recipients: Evidence from the SSP Applicant Experiment By David Card; Dean R. Hyslop
  10. Neutral or Fair?: Actuarial Concepts and Pension-System Design By Monika Queisser; Edward Whitehouse
  11. Fear and Market Failure: Global Imbalances and 'Self-insurance' By Miller, Marcus; Zhang, Lei
  12. Employment Regulation and Labor Market Policy in Germany, 1991-2005 By Bernhard Ebbinghaus; Werner Eichhorst

  1. By: Rajeev Ahuja (Indian Council for Research on International Economic Relations)
    Date: 2005–06
  2. By: Rajeev Ahuja (Indian Council for Research on International Economic Relations); Basudeb Guha-Khasnobis (Indian Council for Research on International Economic Relations)
    Date: 2005–06
  3. By: Tali Regev
    Abstract: Under federal-state law workers who quit a job are not entitled to receive unemployment insurance benefits. To show how the existence of the uninsured affects wages and employment, I extend an equilibrium search model to account for two types of unemployed workers: those who are currently receiving unemployment benefits and for whom an increase in unemployment benefits reduces the incentive to work, and those who are currently not insured. For these, work provides an added value in the form of future eligibility, and an increase in unemployment benefits increases their willingness to work. Incorporating both types into a search model permits me to solve analytically for the endogenous wage dispersion and insurance rate in the economy. I show that, in general equilibrium when firms adjust their job creation margin, the wage dispersion is reduced and the overall effect of benefits can be signed: higher unemployment benefits increase average wages and decrease the vacancy-to-unemployment ratio.
    Keywords: Unemployment insurance
    Date: 2006
  4. By: Dubois, Pierre
    Abstract: In this paper, we study the determinants of the value of informal risk sharing groups. In particular, we look at the effects of heterogeneity of preferences and of limited commitment constraints that restrict feasible allocations differently if individuals can deviate form risk sharing agreements in coalitions or not. We test empirically several predictable implications in rural Pakistan taking into account the heterogeneity of households' preferences. Our results show that exogenous size of risk sharing groups can be rejected or that only imperfect risk sharing is obtained within the village because of limited commitment and because of the risk of coalition formation that needs to be deterred.
    Keywords: coalitions; insurance; limited commitment; Pakistan; risk; risk aversion
    Date: 2006–12
  5. By: Barbara Hanel (University of Erlangen-Nuremberg); Regina T. Riphahn (University of Erlangen-Nuremberg and IZA Bonn)
    Abstract: We use reforms in the Swiss public retirement system to identify the responsiveness of retirement timing to financial incentives. A permanent reduction of retirement benefits by 3.4 percent induces more than 70 percent of females to postpone their retirement. The responsiveness of male workers, who undergo a different treatment, is lower.
    Keywords: retirement insurance, incentives, social security, labor force exit, natural experiment, Switzerland
    JEL: J26 H55 J14
    Date: 2006–12
  6. By: Andrea Morone; Ozlem Ozdemir
    Abstract: The study investigates protective responses in low probability and high loss risk situations. Particularly, it (1) detects individual protection valuations to variations in probability versus to variations in loss for payment decisions and choice decisions, (2) elicits the threshold probability in individuals’ minds that make them consider having protective measure, (3)calculates relative risk aversion. The results of the experiment indicate that as the probability of loss and loss amount increases, individuals tend to buy/pay more for protection. They are more responsive to the variation in probabilities than to the variation in loss amounts when they decide whether to buy the protective measure or not: choice decision. Yet, the opposite is true when they decide the amount of willingness to pay for buying the protective measure: payment decision. In addition, bid expected loss values have a bimodal distribution. Consistent with previous studies, individuals (particularly women) are found to be risk averse for low probabilities.
    Keywords: experiments, risk, insurance
    JEL: C91 D81
    Date: 2006–12
  7. By: Werner Eichhorst (IZA Bonn); Maria Grienberger-Zingerle (Max Planck Institute for Foreign and International Social Law and Bavarian Ministry of Labor); Regina Konle-Seidl (Institute for Employment Research (IAB))
    Abstract: This paper provides an overview of the sequential shift towards activating labor market and social policy in Germany. It not only shows the changes in the instruments of active and passives labor market policies but also analyzes the implications of this change for the political economy, the governance and the legal structure of a "Bismarckian" welfare state. Our study points at the changes in Germany’s status- and occupation-oriented unemployment benefit regime that has been relinquished for a larger share of dependent population. Unemployment insurance benefit duration is shorter now and newly created basic income support for needy persons is not earnings-related anymore. Pressure on unemployed to take up jobs has increased considerably while more persons than before have access to employment assistance. The paper also aims at a preliminary assessment of the effects of activating labor market policy on labor market as well as social outcomes and sets out probable paths of future adaptation.
    Keywords: activation, unemployment insurance, unemployment assistance, Germany
    JEL: J68
    Date: 2006–12
  8. By: Brian McCall; Wei Chi
    Abstract: We develop an empirical model to estimate the impact of UI on unemployment duration and reemployment wages. The model estimates the UI receipt, unemployment duration and re-employment wage equations simultaneously and incorporates unobserved heterogeneity variables in each equation and allows them to be correlated. The NLSY79 data is used to estimate the model. Some results are found support of the positive effect of UI on re-employment wages.
  9. By: David Card; Dean R. Hyslop
    Abstract: In the SSP Applicant Experiment, a random sample of new welfare entrants was informed that if they remained on welfare for a year they would become eligible for a generous earnings subsidy. Those who satisfied the waiting period and then left welfare and began working full time within the following year were entitled to receive payments for up to 36 months whenever they were off welfare and working full time. A simple optimizing model suggests that the program rules created an unusual sequence of incentives to: (1) prolong the initial spell on welfare for at least 12 months to become eligible for the subsidy offer; (2) establish subsidy entitlement by finding full time work and leaving welfare in the 12 to 24 month period after initial entry; and (3) choose work over welfare during the three years that subsidies were available. Consistent with these implications, comparisons between the experimental treatment group and a randomly assigned control group show that the program increased welfare participation in the first year after initial entry and lowered it over the following 5 years. We develop an econometric model of welfare participation and program eligibility status that allows us to identify the behavioral effects associated with the program rules. We find important responses to all three incentives. We also find that the impact of the program persisted after subsidy payments ended, although the effect decayed over time.
    JEL: I38
    Date: 2006–12
  10. By: Monika Queisser; Edward Whitehouse
    Abstract: 1. Economists and policymakers increasingly use the word “actuarial” in the analysis of pension systems and retirement incentives. But the debate is often confused. “Actuarial fairness” and “actuarial neutrality” are promoted loosely as desirable goals of pension reform. This paper distinguishes two actuarial concepts and discusses their importance for defined-benefit, defined-contribution and notional accounts pension plans. • Actuarial fairness, which requires that the present value of lifetime contributions equals the present value of lifetime benefits. Actuarial fairness relates to the entire lifetime of contributions and benefits • Actuarial neutrality, which requires that the present value of accrued pension benefits for working an additional year is the same as in the year before (meaning that benefits increase only by the additional entitlement earned in that year). Conversely, retiring a year earlier should reduce the pension benefit both by the entitlement that would have been earned during the year and by an amount to reflect the longer duration for which the pension must be paid. Actuarial neutrality is a marginal concept, relating to the effect of working an additional year. 2. The discussion shows that it is very difficult to design pension systems around these actuarial concepts alone. Most retirement income systems have several components; some of these may be actuarially fair or actuarially neutral but others, notably safety-nets to protect retirees from poverty, will by definition not fulfil the conditions of actuarial fairness or neutrality. Finally, both concepts are defined across the population, regardless of the systematic differences in life-expectancy between women and men or between low-income groups and richer workers. People who expect to live longer will get a better deal out of the pension system than those who are expected to die earlier. <BR>3. Les économistes et les décideurs utilisent de plus en plus le terme “actuariel” dans le cadre de l’analyse des systèmes de pension et des incitations à la retraite. Pour autant, le débat manque souvent de clarté. « L’équité actuarielle » et « la neutralité actuarielle » sont deux concepts vaguement encouragés comme étant des objectifs souhaitables pour les réformes de pension. Ce document fait la distinction entre ces deux concepts actuariels et montre leur importance pour les plans de retraite à prestations définies, à cotisations définies et pour le modèle des comptes notionnels. • L’équité actuarielle préconise que la valeur actuelle des cotisations sur l’ensemble de la carrière professionnelle soit égale à la valeur actuelle des prestations perçues pendant la retraite. • La neutralité actuarielle préconise que la valeur actuelle des prestations de pensions constituées pour une année supplémentaire de travail soit la même que pour l’année précédente (signifiant que les prestations augmentent seulement conformément aux droits supplémentaires gagnés cette année-là). A l’inverse, partir à la retraite un an plus tôt devrait réduire les prestations de pensions par les droits qui auraient dû être acquis cette année et par un montant reflétant l’allongement de la durée pendant laquelle la retraite doit être payée. Neutralité actuarielle est un concept marginal, en rapport avec l’incidence de travailler un an de plus. 4. Le débat montre qu’il est très difficile d’élaborer des systèmes de pension autour de ces concepts actuariels seuls. La plupart des systèmes de retraite ont plusieurs éléments; certains peuvent être actuariellement justes ou actuariellement neutres mais les autres comme notamment les filets de sécurité devant protéger les retraités de la pauvreté, ne pourront par définition remplir les conditions d’équité ou de neutralité actuarielle. Finalement, les deux concepts sont définis parmi la population, sans se soucier des différences systématiques dans la longévité entre femmes et hommes ou entre les groupes de bas revenus et les travailleurs plus aisés. Les personnes qui vivront plus longtemps obtiendront de meilleurs résultats de leur système de pension que ceux qui mourront plus tôt.
    JEL: H55 J26
    Date: 2006–12–04
  11. By: Miller, Marcus; Zhang, Lei
    Abstract: Two key issues are examined in an integrated framework: the emergence of global imbalances and the precautionary motive for accumulating reserves. Standard models of general equilibrium would predict modest current account surpluses in the emerging markets if they face higher risk than the US itself. But, with pronounced Loss Aversion in Emerging Markets, their precautionary savings can generate substantial ‘global imbalances’, especially if there is an inefficient supply of global ‘insurance’. A combination of fear and market failure generates imbalances as a general equilibrium outcome. In principle, lower real interest rates will ensure aggregate demand equals supply at a global level: but disequilibrium may result if the required real interest rate is negative. A precautionary savings glut appears to us to be a temporary phenomenon, however, destined for correction as and when adequate reserve levels are achieved. If the process of correction is triggered by ‘Sudden Stop’ on capital flows to the US, might this not lead to 'hard landing' that is forecast by several leading macroeconomists? When precautionary saving is combined with financial panic, history offers no guarantee of full employment.
    Keywords: liquidity trap; loss aversion; stochastic dynamic general equilibrium
    JEL: D51 D52 E12 E13 E21 E44 F32
    Date: 2006–12
  12. By: Bernhard Ebbinghaus (MZES, University of Mannheim); Werner Eichhorst (IZA Bonn)
    Abstract: The paper provides an overview of institutional provisions and reforms regarding employment protection, active and passive labor market policies in Germany as well as of actors' responsibilities in these areas. It covers the period between the early 1990s and the most recent Hartz reforms. Empirical data on labor market outcomes with respect to the levels and structures of both employment and unemployment complements this study.
    Keywords: employment protection, active labor market policy, unemployment insurance, Germany
    JEL: J60 J68
    Date: 2006–12

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