nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒03‒24
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Moral hazard among the sick and unemployed: evidence from a Swedish social insurance reform By Larsson, Laura; Runeson, Caroline
  2. The German Social Long-Term Care Insurance: Structure and Reform Options By Melanie Arntz; Ralf Sacchetto; Alexander Spermann; Susanne Steffes; Sarah Widmaier
  3. The "Rainmaker's Dilemma": Bad Debt Loss Insurance in Settlement and Litigation By Roland Kirstein; Hans Gerhard
  4. Wage Risk and Employment Risk Over the Life Cycle By Low, Hamish; Meghir, Costas; Pistaferri, Luigi
  5. The development of trust and social capital in rural Uganda: An experimental approach. By Paul Mosley; Arjan Verschoor
  6. Benefit-Entitlement Effects and the Duration of Unemployment : An Ex-ante Evaluation of Recent Labour Market Reforms in Germany By Hendrik Schmitz; Viktor Steiner
  7. Pricing Fund Liquidity Provision By Marco Rossi
  8. Anti-Teilen in Teams By Roland Kirstein

  1. By: Larsson, Laura (IFAU - Institute for Labour Market Policy Evaluation); Runeson, Caroline (Institute for Labour Market Policy Evaluation)
    Abstract: This paper looks at a specific type of moral hazard that arises in the interplay between two large public insurance systems in Sweden, namely the sickness insurance (SI) and the unemployment insurance (UI). Moral hazard can arise from the benefit size structure as for some unemployed persons, benefits from the SI are higher than benefits from the UI. We use a reform of the SI system that came in force 1 July, 2003, to identify the effect of economic incentives arising from the different benefit sizes. Our results from a duration analysis show clearly that the higher the benefits, the larger the probability of reporting sick.
    Keywords: Unemployment insurance; sickness insurance; health; duration analysis; discrete hazard models
    JEL: C41 H55 I18 J64 J65
    Date: 2007–03–14
  2. By: Melanie Arntz (ZEW Mannheim); Ralf Sacchetto (ZEW Mannheim); Alexander Spermann (ZEW Mannheim, University of Freiburg and IZA Bonn); Susanne Steffes (ZEW Mannheim); Sarah Widmaier (ZEW Mannheim)
    Abstract: Regarding social needs in Germany long-term care is an important issue due to an ageing population. Shrinking social networks are leading to a greater need for a public long-term care system. In 1995 the social long-term care insurance was introduced in Germany. In recent years some drawbacks of the social long-term care insurance structure turned out to be in need of reform: While health insurance is a fully comprehensive system, long-term care insurance only provides limited cover. Therefore, insurance funds have an incentive to shift some services from health care to long-term care insurance. Additionally, there is no free competition on the long-term care market because care packages included in the in-kind transfers are negotiated (with respect to services and prices) between insurance funds and professional care providers. Finally, the financial situation of the German social long-term care insurance is tight. While in the first years after introduction the net results of revenues and expenditures were positive they have been negative since 1999 which is due to an increasing number of benefit recipients. Therefore, we discuss several reform options which have been proposed in order to overcome the financial and structural problems. Suggestions for the income side include the introduction of fixed premiums, a fully funded system, a private insurance, or a citizens’ insurance. The introduction of individual budgets is the most popular option for the outcome side. A social experiment is under way in order to evaluate the impact of so-called matching transfers.
    Keywords: long-term care, cash transfers, in-kind transfers, social experiments
    JEL: I10 I12 I18
    Date: 2007–02
  3. By: Roland Kirstein (University of Saarland); Hans Gerhard (Saarland University)
    Abstract: In this paper, we analyze the impact of Bad Debt Loss Insurance on settlement outcomes. A huge success in a settlement or trial may turn into a disaster when the defendant goes bankrupt. "Rainmakers" face the following dilemma: the greater the success in court, the greater the defendant's bankruptcy risk. The starting point of our paper is a simple trial and litigation model with perfect and complete information. We add the possibility of a defendant's bankruptcy as well as Bad Debt Loss Insurance for both the settlement and the trial stage. We demonstrate that trial insurance and settlement insurance may have different impacts on the outcome of settlement negotiations. Trial insurance tends to increase the settlement result; therefore, it generates a contract rent for the insurer and the insured. Settlement insurance, however, can under certain conditions have the opposite effect: it may decrease the settlement result.
    Keywords: Strategic Insurance, British Cost Allocation Rule, Nash Bargaining Solution.,
    JEL: K41 C78 G22
  4. By: Low, Hamish; Meghir, Costas; Pistaferri, Luigi
    Abstract: This paper decomposes the sources of risk to income that individuals face over their lifetimes. We distinguish productivity risk from employment risk and identify the components of each using the Survey of Income and Program Participation and the Panel Study of Income Dynamics. Estimates of productivity risk controlling for employment risk and for individual labour supply choices are substantially lower than estimates that attribute all wage variation to productivity risk. We use a partial equilibrium life-cycle model of consumption and labour supply to analyse the choices individuals make in the light of these risks and to measure the welfare cost of the different types of risk. Productivity risk induces a considerably greater welfare loss than employment risk primarily because productivity shocks are more persistent. Reflecting this, the welfare value of government programs such as food stamps which partially insure productivity risk is greater than the value of unemployment insurance which provides (partial) insurance against employment risk and no insurance against persistent shocks.
    Keywords: Employment risk; life-cycle models; Precautionary savings; Uncertainty; unemployment; Wage risk
    JEL: D91 E21 H31 J64
    Date: 2007–03
  5. By: Paul Mosley; Arjan Verschoor (Department of Economics, The University of Sheffield)
    Abstract: Trust is important for development but can be hard to build. In this paper, we report on experiments designed to understand the determinants of trust in villages in eastern Uganda, and in particular whether trust can be `built´ by offering insurance to people as a protection against the possibility that the trust they offer will not be reciprocated. We find, firstly, that the effects of income and wealth on trust are ambiguous: trust is higher in the richer than the poorer village, but once association and female education are added as explanatory variables, the wealth effect disappears. Secondly, although the offer of insurance is taken up by a majority of players, this is in most cases not an `effective demand´ in the sense of incentivising higher levels of trust. Effective demand for insurance, defined in this way, however responds positively to high levels of risk efficacy, microfinance membership and female education. Insurance offered in this form, therefore, is on its own apparently not a reliable technology for building trust; but its effectiveness as a trust-building instrument appears to increase if certain complementary institutions are in position.
    Keywords: Trust, Social Capital, Insurance, Uganda
    JEL: O12 O16 C93
    Date: 2005–06
  6. By: Hendrik Schmitz; Viktor Steiner
    Abstract: Abstract: We analyse benefit-entitlement effects and the likely impact of the recent reform of the unemployment compensation system on the duration of unemployment in Germany on the basis of a flexible discrete-time hazard rate model estimated on pre-reform data from the German Socioeconomic Panel (SOEP). We find (i) relatively strong benefit-entitlement effects for the unemployed who are eligible to means-tested unemployment assistance after the exhaustion of unemployment benefit, but not for those without such entitlement; (ii) non-monotonic benefit-entitlement effects on hazard rates with pronounce spikes around the month of benefit-exhaustion, and (iii) relatively small marginal effects of the amount of unemployment compensation on the duration of unemployment. Our simulation results show that the recent labour market reform is unlikely to have a major impact on the average duration of unemployment in the population as a whole, but will significantly reduce the level of long-term unemployment among older workers.
    Keywords: unemployment duration, unemployment insurance, benefit-entitlement effects, German labour market reforms, ex-ante evaluation, hazard rate model
    JEL: J64 J65 H31
    Date: 2007
  7. By: Marco Rossi
    Abstract: This paper presents a market-based framework for pricing Fund liquidity assistance that accounts for the credit risk and the insurance benefit involved in such operations. It is based on the isomorphic correspondence between Fund liquidity and common stock put options. Although only illustrative, the simulations presented in this paper show that the value of the liquidity guarantee provided by the Fund could range from a few to over one hundred basis points depending on the borrower's creditworthiness, the volatility of capital flows to the borrowing country, and the amount of funds potentially needed to meet the borrower's external obligations.
    Keywords: Fund financing facility , lender of last resort , liquidity provision , option pricing , Fund liquidity , Pricing policy , Economic models ,
    Date: 2007–02–28
  8. By: Roland Kirstein (University of Saarland)
    Abstract: Soll der gemeinsam erzeugte Output zwischen den Mitgliedern eines Teams aufgeteilt werden, so kann dies die Anreize aller Mitglieder vermindern, unbeobachtbare Anstrengung zu leisten. Weist die gemeinsame Produktionsfunktion darüber hinaus positive Kreuzableitungen auf, so ist Teamarbeit zwar besonders sinnvoll. Allerdings senkt dann die ineffiziente Anstrengung der anderen Teammitglieder die Grenzproduktivität jedes einzelnen, was die individuell rationale Anstrengung noch weiter reduziert. Der Beitrag schlägt einen simplen Vertrag vor, der diese Probleme löst: Anti-Teilung. Im Rahmen dieses Vertrages hat jedes Teammitglied Aussicht auf den gesamten Teamoutput. Hierzu muß jedes Teammitglied sich verpflichten, einen fixen Betrag zu tragen, der allerdings kleiner ist als der effiziente Output. So implementiert Anti-Teilung allseitige effiziente Anstrengung als ein Nash-Gleichgewicht. Damit dieser Vertrag glaubwürdig ist, muß ein nicht-aktiver Akteur die Rolle des Anti-Teilers übernehmen. Dies kann ein externer Akteur sein, oder aber ein Mitglied des Teams übernimmt diese Rolle (interner Anti- Teiler). Externe Anti-Teilung implementiert das First-Best-Ergebnis, interne Anti-Teilung führt dagegen zu einem niedrigeren Output (der jedoch höher ausfallen kann als unter dem Aufteilungsvertrag).
    Keywords: Strategische Komplemente, Teilungsproblem, Anti-Insurance,
    JEL: M D C

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