nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒01‒28
ten papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. "Demand for non-life insurance: A cross-country analysis" A number of existing studies on insurance demand report an apparently pathological result that insurance is a luxury good. Using cross-country insurance data and national wealth data, we resolve this spurious puzzle. While we found that the income elasticity of insurance demand is larger than unity, the wealth elasticity of insurance demand is smaller than unity at least for upper-middle and high wealth countries. By Hiroyuki Nakata; Yasuyuki Sawada
  2. Genetic Tests and Intertemporal Screening in Competitive Insurance Markets By Emons, Winand
  3. Risk-bearing and Entrepreneurship By Newman, Andrew
  4. Does Social Capital reduce moral hazard? A network model for non-life insurance demand By Giacomo Pasini; Giovanni Millo
  5. Prescription Drug Insurance and Its Effect on Utilization and Health of the Elderly By Nasreen Khan; Robert Kaestner; Swu Jane Lin
  6. How to Help Unemployed Find Jobs Quickly; Experimental Evidence from a Mandatory Activation Program By Krogh Graversen, Brian; van Ours, Jan C
  7. Time-varying effects when analysing customer lifetime duration, application to the insurance market By Montserrat Guillen; Jens Perch Nielsen; Tomas Scheike; Ana Maria Perez-Marin
  8. Understanding Regional Differences in Work Hours By Heisz, Andrew; Larochelle-Côté, Sébastien
  9. Dedicated Doctors: Public and Private Provision of Health Care with Altruistic Physicians By Josse Delfgaauw
  10. Who Chooses Defined Contribution Plans? By Jeffrey R. Brown; Scott J. Weisbenner

  1. By: Hiroyuki Nakata (Department of Accounting and Finance, Management, University of Essex); Yasuyuki Sawada (Faculty of Economics, University of Tokyo)
    Date: 2007–01
  2. By: Emons, Winand
    Abstract: We consider successive generations of non-altruistic individuals carrying a good or bad gene. Daughters are more likely to carry their mother's gene than the opposite one. Competitive insurers can perform a genetic test revealing an agent's gene. They may condition their quotes on the agent's or on her ancestors' genetic status. In equilibrium generation one is bribed to take the test with an unconditional quote. The insurer uses this information to profitably screen a finite number of generations of their offspring. The offspring of good gene carriers subsidize the tested generation.
    Keywords: genetic tests; insurance; pooling; screening
    JEL: D82 G22
    Date: 2007–01
  3. By: Newman, Andrew
    Abstract: In the 'Knightia'” theory of entrepreneurship, entrepreneurs provide insurance to workers by paying fixed wages and bear all the risk of production. This paper endogenizes entrepreneurial risk by allowing for optimal insurance contracts as well as the occupational self-selection. Moral hazard prevents full insurance; increases in an agent’s wealth then entail increases in risk borne. Thus, even under decreasing risk aversion, there are robust instances in which workers are wealthier than entrepreneurs. This empirically implausible result suggests that risk-based explanations for entrepreneurship are inadequate.
    Keywords: moral hazard; occupational choice; principal-agent model
    JEL: D2 D8 L2 O16
    Date: 2007–01
  4. By: Giacomo Pasini (Department of Economics, University Of Venice Cà Foscari, Economics and Organization, School for Advanced Studies in Venice); Giovanni Millo (Research Department, Generali S.p.A.)
    Abstract: We study is the effect of moral hazard involved in non market contracts on the demand for marketed contracts. We extend Arnott and Stiglitz model on the coexistence of market and non-market insurance contracts to allow for the presence of Social Capital as a determinant of the severity of moral hazard in informal contracts. We provide a rigorous definition of Social Network and Social Capital by means of an equilibrium concept typical of the Network literature. Such a formal approach gives us a clear guidance for measuring Social Capital and validate the model on empirical data. The model is estimated on a panel dataset, supporting our claim that Social Capital increases the demand for non-life insurance. We test for the presence of spatial correlation, and conclude that the spatial structure of demand for non-life insurance contracts is completely determined by the spatial distribution of Social Capital.
    Keywords: Insurance, Social Capital, Network stability, Spatial Panel data model
    JEL: C21 D85 G22 Z13
    Date: 2006
  5. By: Nasreen Khan; Robert Kaestner; Swu Jane Lin
    Abstract: The Medicare Modernization Act was recently established, to provide limited drug coverage to the elderly. However, there is limited evidence on how drug coverage might affect health. The goal of this paper is to obtain “causal effects” of prescription drug coverage on drug use, use of other medical services and health of the elderly. We use fixed-effects analysis to control for unmeasured person-specific effects that may confound the relationships of interest. Results show prescription drug coverage, particularly public coverage, significantly increased the utilization of prescription drugs, but had no discernable effect on hospital admissions or health.
    JEL: I12 I18 J14
    Date: 2007–01
  6. By: Krogh Graversen, Brian; van Ours, Jan C
    Abstract: This paper investigates how a mandatory activation program in Denmark affects the job finding rate of unemployed workers. The activation program was introduced in an experimental setting where about half of the workers who became unemployed in the period from November 2005 to March 2006 were randomly assigned to the program while the other half was not. It appears that the activation program is very effective. The median unemployment duration of the control group is 14 weeks, while it is 11.5 weeks for the treatment group. The analysis shows that the job finding rate in the treatment group is 30% higher than in the control group. This result is mainly driven by the more intensive contacts between the unemployed and the public employment service.
    Keywords: Experiment; Unemployment duration; Unemployment insurance
    JEL: C41 H55 J64 J65
    Date: 2007–01
  7. By: Montserrat Guillen (Faculty of Economics, University of Barcelona.); Jens Perch Nielsen (Festina Lente and University of Copenhagen.); Tomas Scheike (Department of Biostatistics, University of Copenhagen.); Ana Maria Perez-Marin (Faculty of Economics, University of Barcelona.)
    Abstract: The Cox model (Cox, 1972) is widely used in customer lifetime duration research, but it assumes that the regression coefficients are time invariant. In order to analyse the temporal covariate effects on the duration times, we propose to use an extended version of the Cox model where the parameters are allowed to vary over time. We apply this methodology to real insurance policy cancellation data and we conclude that the kind of contracts held by the customer and the concurrence of an external insurer in the cancellation influence the risk of the customer leaving the company, but the effect differs as time goes by.
    Keywords: Cox model, customer lifetime.
    Date: 2006–12
  8. By: Heisz, Andrew; Larochelle-Côté, Sébastien
    Abstract: In recent years, differences in working hours between Canada and other countries have been the focus of a substantial body of research. Much less attention has been paid to regional differences in work hours, although differences in average annual work hours between some regions are of an order of magnitude that is similar to that of the Canada-U.S. difference. Using data from the 2004 Survey of Labour and Income Dynamics, this study examines how much of differences in working time between Ontario and five other regions of Canada can be explained by 'observable' differences, including differences in union status, industrial structure, job conditions and demographic characteristics. 'Observables' were relatively efficient in explaining differences in the shares of individuals working a short year and working a full-year, full-time schedule. However, they were not very helpful in explaining differences in long work hours, did not entirely explain the larger share of short-year workers in the Atlantic and in British Columbia, and did not explain the huge popularity of the 'low' full-year, full-time schedule in Quebec. These differences that remain unexplained suggest that 'unobservable' factors (those that are difficult to observe in household surveys) also contribute to regional differences in work hours. These include incentives related to wage inequality, possible tax incentives (or disincentives) built upon progressive taxation policies, differences in job conditions, in preferences and tastes, and in the shape of institutions.
    Keywords: Labour, Employment and unemployment, Employment insurance, social assistance and other transfers, Hours of work and work arrangements
    Date: 2007–01–22
  9. By: Josse Delfgaauw (Erasmus Universiteit Rotterdam)
    Abstract: Physicians are supposed to serve patients' interests, but some are more inclined to do so than others. This paper studies how the system of health care provision affects the allocation of patients to physicians when physicians differ in altruism. We show that allowing for private provision of health care, parallel to (free) treatment in a National Health Service, benefits all patients. It enables rich patients to obtain higher quality treatment in the private sector. Because the altruistic physicians infer that in their absence, NHS patients receive lower treatment quality than private sector patients, they optimally decide to work in the NHS. Hence, after allowing for private provision, the remaining (relatively poor) NHS patients are more likely to receive the superior treatment provided by altruistic physicians. We also show, however, that allowing physicians to moonlight, i.e. to operate in both the NHS and the private sector simultaneously, nullifies part of these beneficial effects for the poorest patients.
    Keywords: Altruism; Health care systems; Subsidy; Moonlighting
    JEL: D64 H44 I11 I18
    Date: 2007–01–19
  10. By: Jeffrey R. Brown; Scott J. Weisbenner
    Abstract: This paper provides new evidence on what types of individuals are most likely to choose a defined contribution (DC) plan over a defined benefit (DB) plan. Making use of administrative data from the State Universities Retirement System (SURS) of Illinois, we study the decisions of nearly 50,000 new employees who make a one-time, irrevocable choice between a traditional DB plan, a portable DB plan, and an entirely self-managed DC plan. Because the SURS-covered earnings of these employees are not covered under the Social Security system, their choices provides insight into the DB vs. DC preferences of individuals with regard to a primary source of their retirement income. We find that a majority of participants fail to make an active decision and are thus defaulted into the traditional DB plan after 6 months. We also find that those individuals who are most likely to be financially sophisticated are most likely to choose the self-managed DC plan, despite the fact that, given plan parameters, the DC plan is inferior to the portable DB plan under reasonable assumptions about future financial market returns. We discuss both rational and behavioral reasons that might explain this finding.
    JEL: D14 G11
    Date: 2007–01

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