nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒07‒07
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Work Disability, Health, and Incentive Effects By Axel Börsch-Supan
  2. Underfunding of Defined Benefit Pension Plans and Benefit Guarantee Insurance - An Overview of Theory and Empirics By Mario Jametti
  3. Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions By Knut Røed; Lars Westlie
  4. Incentive and spill-over effects of supplementary sickness compensation By Hesselius, Patrik; Persson, Malin
  5. Tax Incentives as a Solution to the Uninsured: Evidence from the Self-Employed By Gulcin Gumus; Tracy L. Regan
  6. Unemployment Insurance Design: Inducing Moving and Retraining By Hassler, John; Rodríguez Mora, José Vicente

  1. By: Axel Börsch-Supan (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: Disability insurance – the insurance against the loss of the ability to work – is a substantial part of social security expenditures in many countries. The enrolment rates in disability insurance vary strikingly across European countries and the US. This paper investigates the extent of, and the causes for, this variation, using data from SHARE, ELSA and HRS. We show that even after controlling for differences in the demographic structure and health status these differences remain. In turn, indicators of disability insurance generosity explain 75% of the cross-national variation. We conclude that country-specific disability insurance rules are a prime candidate to explain the observed cross-country variation in disability insurance enrolment.
    Date: 2007–07–03
  2. By: Mario Jametti
    Abstract: We review the theoretical literature on defined benefit (DB) pension plans, particularly focusing on the issue of plan underfunding and benefit guarantee insurance schemes. The literature shows that underfunding can, under reasonable assumptions, be an equilibrium outcome even in the absence of benefit insurance. The introduction of benefit guarantee funds was a reaction to the problem of underfunding, and we summarize the ensuing standard problems of moral hazard and adverse selection. We briefly discuss the small empirical research on the subject and propose directions for future research.
    Keywords: defined benefit pension plans, underfunding, pension benefit guarantee
    JEL: G23 G28
    Date: 2007–05
  3. By: Knut Røed (Ragnar Frisch Centre for Economic Research and IZA); Lars Westlie (Ragnar Frisch Centre for Economic Research)
    Abstract: Based on a sequence of reforms in the Norwegian unemployment insurance (UI) system, we show that activity-oriented UI regimes - i.e., regimes with a high likelihood of required participation in active labor market programs, duration limitations on unconditional UI entitlements, and high sanction probabilities - deliver substantially shorter unemployment spells than pure income-insurance regimes. Soft constraints, in the form of activity requirements or small benefit cuts after a pre-specified UI duration, have many of the same behavioral consequences as threats of complete benefit termination. Early introduction of a soft constraint appears particularly effective; our results show that the expected unemployment duration falls by half a day for each week the soft constraint is moved ahead in the UI spell. Mild sanctions, in the form of temporary benefit terminations in response to inadequate search effort or excess choosiness, cause a significant rise in the job hazard.
    Keywords: competing risks, unemployment insurance, timing-of-events, NPMLE, MMPH
    JEL: C14 C15 C41 J64 J65 J68
    Date: 2007–06
  4. By: Hesselius, Patrik (IFAU - Institute for Labour Market Policy Evaluation); Persson, Malin (Department of Economics, Uppsala University)
    Abstract: In 1998 the Swedish national sickness insurance policy changed to allow additional compensation from e.g. collective agreements after the 90th day of absence without a reduction of the public sickness benefit. We estimate the effects of this policy change on the duration of sickness absence for employees in the municipal sector. After the change in policy, this group received 10 percentage points additional compensation during day 91 to 360 in a sick leave. The results indicate that durations of at least 91 days increased by 4.7 days on average. As a consequence, the cost for the national sickness insurance increased by 3.0 percent. For the supplementary insurance to cover its total cost, insurance premiums should be increased by 22 percent.
    Keywords: Social insurance; sickness absence; collective agreements
    JEL: H51 H55 I38 J22
    Date: 2007–06–19
  5. By: Gulcin Gumus (Florida International University and IZA); Tracy L. Regan (University of Miami)
    Abstract: Between the years 1996 and 2003, a series of amendments were made to the Tax Reform Act of 1986 (TRA86) that gradually increased the tax credit for health insurance purchases by the self-employed from 25 to 100 percent. We study how these changes in the tax code have influenced the likelihood that a self-employed person has health insurance coverage as the policy holder of the plan. The Current Population Survey (CPS) is used to construct a data set corresponding to 1995-2005. The empirical analysis is performed for prime-age men and women, and accounts for differences in family structure and potential eligibility. The difference-in-difference estimates suggest that the series of tax credits did not provide sufficient incentives for the self-employed to obtain health insurance coverage. Estimates of the price elasticity of demand confirm the limited response to changes in the after-tax health insurance premium. The effect was largest, however, among the single men and women in our sample, suggesting that a 10 percent decrease in the after-tax price increases the likelihood of coverage by 0.68 and 1.02 percentage points, respectively.
    Keywords: health insurance, self-employment, elasticity, CPS
    JEL: J32 J48 I11
    Date: 2007–06
  6. By: Hassler, John; Rodríguez Mora, José Vicente
    Abstract: Evidence suggests that unemployed individuals can sometimes affect their job prospects by undertaking a costly action like deciding to move or retrain. Realistically, such an opportunity only arises for some individuals and the identity of those may be unobservable ex-ante. The problem of characterizing constrained optimal unemployment insurance in this case has been neglected in previous literature. We construct a model of optimal unemployment insurance where multiple incentive constraints are easily handled. The model is used to analyze the case when an incentive constraint involving moving costs must be respected in addition to the standard constraint involving costly unobservable job-search. In particular, we derive closed-form solutions showing that when the moving/retraining incentive constraint binds, unemployment benefits should increase over the unemployment spell, with an initial period with low benefits and an increase after this period has expired.
    Keywords: adverse selection; moral hazard; search; Unemployment benefits
    JEL: E24 J64 J65
    Date: 2007–06

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