nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒08‒27
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Managing agricultural risk at the country level : the case of index-based livestock insurance in Mongolia By Skees, Jerry; Mahul, Olivier
  2. The determinants of the insurance demand by firms By GOLLIER, Christian
  3. Medical Expenditure Risk and Household Portfolio Choice By Dana P. Goldman; Nicole Maestas
  5. The Value of Life Near its End and Terminal Care By Gary Becker; Kevin Murphy; Tomas Philipson
  6. Should new or rapidly growing banks have more equity? By Niinimäki , Juha-Pekka
  7. Does disability explain state-level differences in the quality of Medicare beneficiary hospital inpatient care? By Brian S. Armour; M. Melinda Pitts
  8. Relatively Inaccessible Abundance: Reflections on U.S. Health Care By Ivy Lynn Bourgeault

  1. By: Skees, Jerry; Mahul, Olivier
    Abstract: This paper describes the index-based livestock insurance program in Mongolia designed in the context of a World Bank lending operation with Government of Mongolia and implemented on a pilot basis in 2005. This program involves a combination of self -insurance by herders, market-based insurance, and social insurance. Herders retain small losses, larger losses are transferred to the private insurance industry, and extreme or catastrophic losses are transferred to the government using a public safety net program. A syndicate pooling arrangement protects participating insurance companies against excessive insured losses, with excess of loss reinsurance provided by the government. The fiscal exposure of Government of Mongolia toward the most extreme losses is protected with a contingent credit facility. The insurance program relies on a mortality rate index by species in each local region. The index provides strong incentives to individual herders to continue to manage their herds so as to minimize the impacts of major livestock mortality events; individual herders receive an insurance payout based on the local mortality, irrespective of their individual losses. This project offered the first opportunity to design and implement an agriculture insurance program using a country-wide agricultural risk management approach. During the first sales season, 7 percent of the herders in the three pilot regions purchased the insurance product.
    Keywords: Insurance & Risk Mitigation,Insurance Law,Hazard Risk Management,Debt Markets,Banks & Banking Reform
    Date: 2007–08–01
  2. By: GOLLIER, Christian
    Date: 2007–07–22
  3. By: Dana P. Goldman; Nicole Maestas
    Abstract: As health care costs continue to rise, medical expenses have become an increasingly important contributor to financial risk. Economic theory suggests that when background risk rises, individuals will reduce their exposure to other risks. This paper presents a test of this theory by examining the effect of medical expenditure risk on the willingness of elderly Medicare beneficiaries to hold risky assets. The authors measure exposure to medical expenditure risk by whether an individual is covered by supplemental insurance through Medigap, an employer, or a Medicare HMO. They account for the endogeneity of insurance choice by using county variation in Medigap prices and non-Medicare HMO market penetration. They find that having Medigap or an employer policy increases risky asset holding by 6 percentage points relative to those enrolled in only Medicare Parts A and B. HMO participation increases risky asset holding by 12 percentage points. Their results point to an important link between the availability and pricing of health insurance and the financial behavior of the elderly.
    Keywords: cost of medical care, managed care plans, health insurance
    JEL: I0
    Date: 2007–02
  4. By: Kokko , Ari (European Institute of Japanese Studies); Gustavsson Tingvall, Patrik (China Economic Research Center)
    Abstract: The purpose of this paper is to track the development of three components of the Vietnamese welfare state since the introduction of market-oriented economic reforms in the late 1980s: education, health, and social insurance. This is done with reference to Sweden's historical experiences of economic and social development. While Vietnam has achieved remarkable success in both the education and health sectors, with increasing literacy rates, school enrolment rates, and improving health indicators, it is clear that the Vietnamese welfare state is fragmented. Access to social services and social security varies across social groups and geographical regions, and some parts of society are becoming marginalized, in the sense that they -and their children- have limited possibilities to improve their living standards, or to benefit from the general development of the Vietnamese society. On the basis of Swedish experiences, the authors argue for gradually increased investments in the social sectors and a stronger focus on universal rather than means-tested benefits, and provide some more specific suggestions for reforms in education, health, and social insurance.
    Keywords: Vietnam; economic reforms; education; health care; social insurance
    JEL: H55 I18 I28 I38 O10
    Date: 2007–06–01
  5. By: Gary Becker; Kevin Murphy; Tomas Philipson
    Abstract: Medical care at the end of life, which is often is estimated to contribute up to a quarter of US health care spending, often encounters skepticism from payers and policy makers who question its high cost and often minimal health benefits. It seems generally agreed upon that medical resources are being wasted on excessive care for end-of-life treatments that often only prolong minimally an already frail life. However, though many observers have claimed that such spending is often irrational and wasteful, little explicit and systematic analysis exists on the incentives that determine end of life health care spending. There exists no positive theory that attempts to explain the high degree of end-of life spending and why differences across individuals, populations, or time occur in such spending. This paper attempts to provide the first rational and systematic analysis of the incentives behind end of life care. The main argument we make is that existing estimates of the value of a life year do not apply to the valuation of life at the end of life. We stress the low opportunity cost of medical spending near ones death, the importance of keeping hope alive in a terminal care setting, the larger social value of a life than estimated in private demand settings, as well as the insignificance in quality of life in lowering its value. We derive how an ex-ante perspective in terms of insurance and R&D alters some of these conclusions.
    JEL: I1 I11 I18 I32 I39 J0
    Date: 2007–08
  6. By: Niinimäki , Juha-Pekka (Bank of Finland Research)
    Abstract: There is substantial evidence that new banks and rapidly growing banks are risk prone. We study this problem by designing a relationship-lending model in which a bank operates as a financial intermediary and centralised monitor. In the absence of deposit insurance, the bank’s limited liability option creates an incentive problem between the bank and its depositors, the likely outcome of which is a reduction in the amounts of resources allocated to monitoring its borrowers. Hence, the bank must signal its safety to depositors by maintaining the equity ratio held. The optimal equity ratio is dynamic, ie new banks need relatively more equity than established banks, which enjoy profitable old lending relationships – charter value – that reduce the incentive problem. However, if an established bank grows rapidly, its share of old relationships also decreases and the bank will have to raise its equity ratio. With deposit insurance, regulators should set higher equity requirements for new banks and rapidly growing banks than for those in a more established position. The results of the model can be extended to more general inter-firm control of credit institutions.
    Keywords: financial intermediation; relationship banking; financial fragility; bank regulation; deposit insurance; moral hazard; product quality
    JEL: G11 G21 G28
    Date: 2007–09–04
  7. By: Brian S. Armour; M. Melinda Pitts
    Abstract: Almost 20 percent of the total U.S. population and 42 percent of the population over the age of sixty-six are disabled. Research has shown that the presence of a disability can crowd out treatment for medical conditions not necessarily related to the disability and that states that are disproportionately African-American have a lower quality of hospital care. This paper uses quality of care data from the Centers for Medicare and Medicaid Services (CMS) to determine whether disability also explains state-level differences in quality of hospital care. The quality of Medicare beneficiary hospital care was measured using process measures for several medical conditions, including acute myocardial infarction, heart failure, stroke, and pneumonia, that are the leading causes of mortality. We use nonlinear least squares to assess the association between Medicare beneficiary quality of care and state- and medical system–level characteristics. The result for the key variable of interest—disability—reveals that a 1 percent increase in a state's disability rate leads to a 1 percentage point reduction in the score of the state's quality of hospital care. Without explicitly incorporating strategies to eliminate disparities in care incurred by people with disabilities, CMS may not adequately promote the goal of delivering the highest quality of care to all Medicare beneficiaries.
    Date: 2007
  8. By: Ivy Lynn Bourgeault
    Abstract: Outsiders’ views of American health care – and Canadian views in particular - contains this paradox: ready access to excellent high tech services for those who can pay but unfortunately too expensive for many Americans; in essence, inaccessible abundance. In this paper, I embellish upon this paradox with an initial examination of the rather complicated organization of American health care as viewed by an outside observer. I then highlight the key benefits and drawbacks seen of U.S. health care, grounded in empirical data, and how despite its drawbacks it is being spread to other countries. I conclude with a discussion of the values inherent in the provision of health care – that is, whether it should be viewed as a commodity or as a right of the citizens of a nation.
    Keywords: U.S. health care, accessibility, external views
    JEL: I18
    Date: 2007–06

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