nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒02‒10
eleven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Integrated Insurance Design in the Presence of Multiple Medical Technologies By Dana Goldman; Tomas Philipson
  2. Health Security for rural poor:study of community based health insurance By Sudha, venu Menon
  3. Crowd-Out Ten Years Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance? By Jonathan Gruber; Kosali Simon
  4. The Economic Impact of the Insurance Industry on Iowa By Swenson, David A.; Eathington, Liesl
  5. Risk taking and the quality of informal insurance: gambling and remittances in Thailand By Douglas L. Miller; Anna Paulson
  6. Optimal Waits and Charges in Health Insurance By Hugh Gravelle; Luigi Siciliani
  7. Health insurance for the poor : initial impacts of Vietnam ' s health care fund for the poor By Wagstaff, Adam
  8. Determinants of Deposit-Insurance Adoption and Design By Asli Demirguc-Kunt; Edward J. Kane; Luc Laeven
  9. Quasi-Experimental Evidence on the Effects of Unemployment Insurance from New York State By Bruce D. Meyer; Wallace K. C. Mok
  10. Investor Protection, Risk Sharing and Inequality By Alessandra Bonfiglioli
  11. Risk Sharing and Growth in the Gifts Economy By Atsue Mizushima; Keiichi Koda

  1. By: Dana Goldman; Tomas Philipson
    Abstract: The classic theory of moral hazard concerns the insurance of a single good and predicts that co-insurance is larger when the elasticity of demand is higher and when small risks are insured. We extend this analysis to the insurance of multiple goods; for example, the simultaneous insurance of medical services and prescription drugs. We show that when multiple goods are either complements or substitutes--so that a change in co-insurance for one service affects the demand of others--the classic moral hazard results do not hold. For example, the single good model would predict high co-payments for prescription drugs since drug demand is elastic and of modest financial risk. However, a model of multi-good insurance suggests such drug coverage may optimally involve zero or even negative co-insurance when it is a substitute to other services insured such as hospital care or physician services. We summarize some of the empirical evidence in support of markets adopting optimal integrated pricing structures rather than individually optimal pricing structures.
    JEL: I1 I10
    Date: 2007–01
  2. By: Sudha, venu Menon
    Abstract: ABSTRACT For many people living in developing nations, illness represents a permanent threat to their income earning capacity and, therefore, their livelihood .Health insurance has been progressively more recognized as a tool to finance healthcare provision in the developing world. The high demand for good quality healthcare and the extreme underutilization of existing health services have given rise to the need for community health insurance—an arrangement that may both increase access to healthcare as well as theoretically improve its quality. While alternative forms of healthcare financing have been scrutinized, the option of insurance seems to be promising as it offers the opportunity to pool risk by converting unpredictable healthcare costs into fixed annual premiums. The typical dialogue surrounding health financing cites three main types of insurance as viable options to provide care. First is social health insurance, a practice initiated in several European countries where the working population of society provides health funds for the entire population, working and non-working. Social health insurance utilizes basic socialist principles to hold all sections of society accountable for the good of the community. The next type of insurance model is private health insurance, a structure that generally prevails in capitalist societies. Private insurance favors those who can afford to pay regular premiums, i.e. the middle class and the wealthy. Private insurance, therefore, inherently excludes the poor and only provides benefits to paying members. Finally, and most notable in discussing health for the rural poor, is community-based health insurance (CBHI). Studies conducted in various developing countries, including India, show that community-based health insurance (CBHI) schemes are highly effective in reaching poor populations. According to Friends of Women's World Banking, CBHI is defined as "any not-for-profit insurance scheme that is aimed primarily at the informal sector and formed on the basis of a collective pooling of health risks, and the members participate in its management." Such schemes frequently function in conjunction with healthcare providers or community organizations, such as local religious institutions, self-help groups (SHGs), or non-governmental organizations (NGOs).CBHI requires that people make a small contribution (i.e. pay a premium), which is then pooled to provide benefits, such as medical costs, to those within the pool who may need assistance. Unlike social or private health insurance schemes, CBHI is distinct in that it is generally initiated and managed by the community it benefits. This characteristic of CBHI is particularly important as it entails that the features of any specific CBHI scheme tailor to the local needs of the people. Against this background, the present paper attempts to analyze the Public Private Partnership [PPP] model in Health Insurance. As an example of the above-examined PPP, Chaitanya and HDFC-Chubb General Insurance, located in the Pune district of Maharashtra is taken as case study. Chaitanya and HDFC have recently joined in an endeavor attempting to provide CBHI coverage to SHG -women and their families in the Chaitanya field area. Founded in 1993, Chaitanya focuses on the establishment and strengthening of SHGs and development through micro-finance programs. Chaitanya's work has motivated the formation of the Grameen Mahila Swayamsiddha Sangha, the first independent federation of SHGs in Maharashtra. Currently, Chaitanya also carries out developmental activities including water & sanitation, agriculture, livelihood, and health. HDFC Bank and Chubb Corporation, USA entered a venture together in 2002 to jointly offer general insurance services. Specifically, HDFC-Chubb GIC offers a rural initiatives program tailored to meet the needs of the rural poor and offer insurance services at reduced costs.
    JEL: H51
    Date: 2006–12–15
  3. By: Jonathan Gruber; Kosali Simon
    Abstract: The continued interest in public insurance expansions as a means of covering the uninsured highlights the importance of estimates of "crowd-out", or the extent to which such expansions reduce private insurance coverage. Ten years ago, Cutler and Gruber (1996) suggested that such crowd-out might be quite large, but much subsequent research has questioned this conclusion. We revisit this issue by using improved data and incorporating the research approaches that have led to varying estimates. We focus in particular on the public insurance expansions of the 1996-2002 period. Our results clearly show that crowd-out is significant; the central tendency in our results is a crowd-out rate of about 60%. This finding emerges most strongly when we consider family-level measures of public insurance eligibility. We also find that recent anti-crowd-out provisions in public expansions may have had the opposite effect, lowering take-up by the uninsured faster than they lower crowd-out of private insurance.
    JEL: H3 I1
    Date: 2007–01
  4. By: Swenson, David A.; Eathington, Liesl
    Abstract: This is a study of the major economic attributes and economic impacts of Iowa’s insurance industry. In all, the state’s competitive position nationally in the insurance industry has improved strongly over the past decade. At the same time, the industry has become an increasingly important contributor to the Iowa economy. This report investigates several attributes of Iowa’s insurance industry and assesses its overall value to our economy – its economic impact. Several important dimensions of the industry are summarized to allow the reader a broad understanding of this industry and its economic characteristics in Iowa.
    JEL: A1
    Date: 2007–02–07
  5. By: Douglas L. Miller; Anna Paulson
    Abstract: More than 35% of Thai households either give or receive remittances, and remittances account for about one-third of the income of the receiving households. Remittance relationships may be an important source of protection against adverse events for the individuals involved. This paper provides evidence that remittances behave in a way that is consistent with insurance: they are sensitive to shocks to regional rainfall and they respond to household level events. The paper goes on to consider how the quality of insurance that is offered through remittances affects household risk taking behavior. Specifically, we show that the likelihood and the amount of gambling increase with the quality of informal insurance. The findings suggest that households who are more insured shift their portfolios toward riskier investments.
    Keywords: Gambling industry ; Payment systems ; Insurance
    Date: 2007
  6. By: Hugh Gravelle; Luigi Siciliani
    Abstract: Waiting times are commonly used in the health sector to ration demand. We show that when money charges (coinsurance rates) are optimally set and there are no redistributional considerations, it is never optimal to have a positive waiting time if the marginal cost of waiting is higher for patients with greater benefits from health care. Although waiting time provides an additional instrument to control demand it does not mitigate the conflict between efficient risk bearing and efficient consumption of health care.
    Keywords: Waiting times, rationing, optimal pricing, insurance
    JEL: H21 H42 I11 I18
    Date: 2007–01
  7. By: Wagstaff, Adam
    Abstract: Vietnam ' s Health Care Fund for the Poor (HCFP) uses government revenues to finance health care for the poor, ethnic minorities living in selected mountainous provinces designated as difficult, and all households living in communes officially designated as highly disadvantaged. The program, which started in 2003, did not as of 2004 include all these groups, but those who were included (about 15 percent of the population) were disproportionately poor. Estimates of the program ' s impact-obtained using single differences and propensity score matching on a trimmed sample-suggest that HCFP has substantially increased service utilization, especially in-patient care, and has reduced the risk of catastrophic spending. It has not, however, reduced average out-of-pocket spending, and appears to have had negligible impacts on utilization among the poorest decile.
    Keywords: Health Monitoring & Evaluation,Health Economics & Finance,Housing & Human Habitats,Health Law,Health Systems Development & Reform
    Date: 2007–02–01
  8. By: Asli Demirguc-Kunt; Edward J. Kane; Luc Laeven
    Abstract: This paper identifies factors that influence decisions about a country's financial safety net, using a comprehensive dataset covering 180 countries during the 1960-2003 period. Our analysis focuses on how private interest-group pressures, outside influences, and political-institutional factors affect deposit-insurance adoption and design. Controlling for macroeconomic shocks, quality of bank regulations, and institutional development, we find that both private and public interests, as well as outside influences to emulate developed-country regulatory schemes, can explain the timing of adoption decisions and the rigor of loss-control arrangements. Controlling for other factors, political systems that facilitate intersectoral power sharing dispose a country toward design features that accommodate risk-shifting by banks.
    JEL: G21 G28 P51
    Date: 2007–01
  9. By: Bruce D. Meyer; Wallace K. C. Mok
    Abstract: This paper examines unemployment duration and the incidence of claims following a 36 percent increase in the maximum weekly benefit in New York State. This benefit increase sharply increased benefits for a large group of claimants, while leaving them unchanged for a large share of claimants who provide a natural comparison group. The New York benefit increase has the special features that it was unexpected and applied to in-progress spells. These features allow the effects on duration to be convincingly separated from effects on incidence. The results show a sharp fall in the hazard of leaving UI that coincides with the increase in benefits. The evidence is also consistent with a substantial effect of the benefit level on the incidence of claims and with this change in incidence biasing duration estimates. The evidence further suggests that, at least in this case, standard methods that identify duration effects through nonlinearities in the benefit schedule are not badly biased.
    JEL: J64 J65
    Date: 2007–01
  10. By: Alessandra Bonfiglioli
    Abstract: This paper studies the relationship between investor protection, financial risk sharing and income inequality. In the presence of market frictions, better protection makes investors more willing to take on entrepreneurial risk while lending to firms. This implies lower cost of external finance and better risk sharing between financiers and entrepreneurs. Investor protection, by boosting the market for risk sharing plays the twofold role of encouraging agents to undertake risky enterprises and providing them with insurance. By increasing the number of risky projects, it raises income inequality. By extending insurance to more agents, it reduces it. As a result, the relationship between the size of the market for risk sharing and income inequality is hump-shaped. Empirical evidence from a cross-section of sixty-eight countries, and a panel of fifty countries over the period 1976-2000, supports the predictions of the model.
    Keywords: Income inequality, stock market development, financial development, capital market frictions, investor protection
    JEL: D31 E44 G30 O15 O16
    Date: 2007–01–29
  11. By: Atsue Mizushima (Graduate School of Economics, Osaka University); Keiichi Koda (International Graduate School of Social Science Graduate School of Economics, Yokohama National University)
    Abstract: We consider a two-period overlapping generations model where agents face the uncertainty of intergenerational transfers from their children. To avoid this kind of risk, agents have an incentive to share the risk within the same generation. However, there exists an information asymmetry about the realization of the old periodfs income between the insurance company and old agents. By analyzing economies with and without risk sharing, we find that risk sharing decreases the rate of economic growth and accelerates social welfare when the rate of social time preference is sufficiently large.
    Keywords: gifts economy, risk sharing, information asymmetry, economic growth, overlapping generations
    JEL: D81 D82 G22 O40
    Date: 2007–02

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