nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒04‒14
five papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. The German social long-term care insurance - structure and reform options By Arntz, Melanie; Sacchetto, Ralf; Spermann, Alexander; Steffes, Susanne; Widmaier, Sarah
  2. Benefit-Entitlement Effects and the Duration of Unemployment: An Ex-Ante Evaluation of Recent Labour Market Reforms in Germany By Hendrik Schmitz; Viktor Steiner
  3. Hedging global environment risks: An option based portfolio insurance By André de Palma; Jean-Luc Prigent
  4. IT IS HOBBES, NOT ROUSSEAU: AN EXPERIMENT ON SOCIAL INSURANCE By Antonio Cabrales; Rosemarie Nagel; Jose V. Rodriguez Mora
  5. Age Differences in the Value of Statistical Life: Revealed Preference Evidence By Aldy, Joseph E.; Viscusi, W. Kip

  1. By: Arntz, Melanie; Sacchetto, Ralf; Spermann, Alexander; Steffes, Susanne; Widmaier, Sarah
    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 which is similar in nature to the other social insurances, such as the health care or pension insurance. Long-term care insurance funds are generally linked to health insurance funds. The benefits are financed by virtue of an income-based system where all employees covered by the social security system and their employers have to pay equal contributions on a pay-as-you-go basis. In case of long-term care needs a frail person is assigned to one of three care levels according to his/her severity of need. Benefit recipients living in private households can choose between three kinds of transfers: in-kind transfers, lump-sum transfers and combined transfers whereas the amount of in-kind transfers is higher than the lump-sum transfers in all care levels. Benefit recipients living in nursing homes receive the highest amount of transfers. 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. For instance, there is a low incentive to provide rehabilitation measures in order to lower the care level. 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 main problem here is to finance the transition from one system to another system. Some proposals are discussed here. 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.
    JEL: I10 I12 I18
    Date: 2006
  2. By: Hendrik Schmitz (Ruhr Graduate School in Economics, Essen); Viktor Steiner (Free University Berlin, DIW Berlin and IZA)
    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) nonmonotonic benefit-entitlement effects on hazard rates with pronounced 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: 2007–03
  3. By: André de Palma (University of Cergy-Pontoise (THEMA),and Ecole Polytechnique); Jean-Luc Prigent (University of Cergy-Pontoise (THEMA))
    Abstract: This paper introduces a financial hedging model for global environment risks. Our approach is based on portfolio insurance under hedging constraints. Investors are assumed to maximize their expected utilities defined on financial and environmental asset values. The optimal investment is determined for quite general utility functions and hedging constraints. In particular, our results suggest how to introduce derivative assets written on the environmental asset.
    Keywords: utility maximization, hedging, environmental asset, martingale theory
    JEL: C6 G11 G24 L10
    Date: 2007
  4. By: Antonio Cabrales; Rosemarie Nagel; Jose V. Rodriguez Mora
    Abstract: We perform an experiment on social insurance to provide a laboratory replica of some important features of the welfare state. In the experiment, all individuals in a group decide whether to make a costly effort, which produces a random (independent) outcome for each one of them. The group members then vote on whether to redistribute the resulting and commonly known total sum of earnings equally amongst themselves. This game has two equilibria, if played once. In one of them, all players make effort and there is little redistribution. In the other one, there is no effort and nothing to redistribute. A solution to the repeated game allows for redistribution and high effort, by the threat to revert to the worst of these equilibria. Our results show that redistribution with high effort is not sustainable. The main reason for the absence of redistribution is that rich agents do not act differently depending on whether the poor have worked hard or not. There is no social contract by which redistribution may be sustained by the threat of punishing the poor if they do not exert effort. Thus, the explanation of the behavior of the subjects lies in Hobbes, not in Rousseau.
    Date: 2006–06
  5. By: Aldy, Joseph E. (Resources for the Future); Viscusi, W. Kip
    Abstract: Revealed preference evidence, especially based on wage-risk tradeoffs in the labor market, provides the primary empirical basis for analyses of the value of statistical life (VSL). This market evidence also provides guidance on how VSL varies with age. While labor market studies have generated conflicting evidence—some showing that VSL rises with age and others showing that VSL declines with age—more refined estimates that take into account the age variation in job fatality risks or life-cycle patterns of consumption show an inverted-U relation between the VSL and age. The value of a statistical life year shows a similar pattern and is not time-invariant. Applying estimates of the VSL-age relationship to an analysis of the Clear Skies initiative illustrates the implications of recognizing the age-VSL relationship.
    Keywords: value of statistical life, VSL, value of statistical life year, risk
    JEL: I10 J17 J28
    Date: 2007–04–06

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