nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒07‒13
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. U.S. tax policy and health insurance demand: can a regressive policy improve welfare? By Karsten Jeske; Sagiri Kitao
  2. Unemployment, Imperfect Risk Sharing, and the Monetary Business Cycle. By Gregory E. Givens
  3. Moral hazard in a voluntary deposit insurance system: Revisited By Camacho-Gutiérrez, Pablo; González-Cantú, Vanessa M.
  4. Valuation of Self-Insurance and Self-Protection under Ambiguity: Experimental Evidence By Ozlem Ozdemir
  5. The ratchet effect in a two lag setting and the mitigating influence of yardstick competition By Lilia Filipova
  6. Stated and Implicit Value of a Statistical Life from Stated WTP, Seat Belt Use and Bicycle Helmet Use By Svensson, Mikael

  1. By: Karsten Jeske; Sagiri Kitao
    Abstract: The U.S. tax policy on health insurance is regressive because it favors only those offered group insurance through their employers, who tend to have a relatively high income. Moreover, the subsidy takes the form of deductions from the progressive income tax system, giving high-income earners a larger subsidy. To understand the effects of the policy, we construct a dynamic general equilibrium model with heterogenous agents and an endogenous demand for health insurance. We use the Medical Expenditure Panel Survey to calibrate the process for income, health expenditures, and health insurance offer status through employers and succeed in matching the pattern of insurance demand as observed in the data. We find that despite the regressiveness of the current policy, a complete removal of the subsidy would result in a partial collapse of the group insurance market, a significant reduction in the insurance coverage, and a reduction in welfare coverage. There is, however, room for raising the coverage and significantly improving welfare by extending a refundable credit to the individual insurance market.
    Date: 2007
  2. By: Gregory E. Givens
    Abstract: This paper examines the impact of unemployment insurance on the propagation of monetary disturbances in a staggered price model of the business cycle. To motivate a role for risk sharing behavior, I construct a quantitative equilibrium model that gives prominence to an efficiency-wage theory of unemployment based on imperfectly observable labor effort. Dynamic simulations reveal that under a full insurance arrangement, staggered price-setting is incapable of generating persistent real effects of a monetary shock. Introducing partial insurance, however, bolsters the amount of endogenous wage rigidity present in the model, enriching the propagation mechanism. Positive real persistence appears in versions of the model that exclude capital accumulation as well as in versions that do not.
    Keywords: Unemployment, Partial Insurance, Staggered Prices, Endogenous Persistence
    JEL: E24 E31 E32 E52
    Date: 2007–07
  3. By: Camacho-Gutiérrez, Pablo; González-Cantú, Vanessa M.
    Abstract: This paper extends Wheelock and Kumbhakar’s (1995) test for moral hazard in the Kansas deposit insurance system (1910-1920). This paper tests and finds evidence of omitted bank-specific effects. Estimates in Wheelock and Kumbhakar (1995), as a result, are biased. This paper introduces unobserved individual heterogeneity to the test for moral hazard, corrects their estimates, and finds more evidence of moral hazard in the Kansas deposit insurance system.
    Keywords: Deposit insurance; moral hazard test; panel data; random and fixed effects.
    JEL: C33 G21 C35 G28
    Date: 2007–05–31
  4. By: Ozlem Ozdemir (Yeditepe University)
    Abstract: This experimental study, first, compares the individual valuations of two risk reduction mechanisms: self-insurance and self-protection. Second, it investigates these valuations when the loss amount is ambiguous, and compare these values with valuations when loss amounts are known. results confirm that there exists no "framing effect" due to the two risk reduction mechanisms. Ambiguity in the loss amount has a weak impact on the valuation, and using different representations of ambiguity does not change the valuation. Moreover, the mean ratios of ambiguous to risky bids are greater than one for low loss amounts indicating ambiguity aversion. These ratios are not significantly different from one for high loss amounts regardless of the probability of loss levels. Finally, 28 percent of the sample behaved consistent with the predictions of "anchoring and adjustment", while only 6 percent supported the "maximin" predictions.
    Keywords: self-insurance, self-protection, risk, uncertainty
    JEL: C91 D81
    Date: 2007–07–06
  5. By: Lilia Filipova (University of Augsburg, Department of Economics)
    Abstract: This paper considers moral hazard insurance markets when voluntary monitoring technologies are available and insureds may choose the precision of monitoring. Also privacy costs incurred thereby are taken into account. Two alternative contract schemes are compared in terms of welfare: (i) monitoring conditional on the loss with only the insurance indemnities based on the monitoring data, and (ii) unrestricted monitoring with both the premiums and the indemnities depending on the data. With any contract scheme some monitoring will be optimal unless the privacy costs increase too fast in relation to the precision of the monitoring signal. In the benchmark situation (without privacy costs) relying completely on both signals (monitoring and the outcome) informative of effort (ii) maximizes welfare. In the presence of privacy costs, the contract with conditional monitoring (i) might dominate the contract which fully includes the outcome and the monitoring signal into the sharing rule (ii). Apart from the direct effect of restricting privacy costs only to the state of loss, there are also an additional indirect incentive and a risk-sharing effect with this contract. Letting the individuals choose the precision of the monitoring technology at the time they reveal the data (ex post) is inefficient with either contract scheme.
    Keywords: moral hazard, conditional monitoring, value of information, privacy
    JEL: D82 G22
    Date: 2007–07
  6. By: Svensson, Mikael (Department of Business, Economics, Statistics and Informatics)
    Abstract: This paper examines (i) determinants of six different safety behaviors, (ii) the within-sample correlation between stated willingness to pay (WTP) for a risk reduction and safety behavior, and (iii) estimates the value of a statistical life (VSL) from seat belt and bicycle helmet use as well as from stated WTP in Sweden. Results indicate that females and the elderly take more precaution in reality, but state a significantly lower WTP for the risk reduction in the survey. Still, there is significant correlation between front and rear seat belt use and the stated WTP, but not for the other four safety behaviors. The estimates of VSL from the different approaches are 77, 45 and 38.5 million SEK from stated WTP, seat belt use and bicycle helmet use respectively ($11.0. $6.4 and $5.5 million).
    Keywords: Value of a Statistical Life; Revealed Preference; Stated Preference; Risk Behavior
    JEL: D80 K13
    Date: 2007–06–26

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