nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒09‒24
seven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Sovereign natural disaster insurance for developing countries : a paradigm shift in catastrophe risk financing By Mahul, Olivier; Ghesquiere, Francis
  2. Evaluating The Effectiveness of Terrorism Risk Financing Solutions By Howard C. Kunreuther; Erwann O. Michel-Kerjan
  3. The Demand for Private Health Insurance in Malawi By Makoka, Donald; Kaluwa, Ben; Kambewa, Patrick
  4. Health and Labor Market Consequences of Eliminating Federal Disability Benefits for Substance Abusers By Pinka Chatterji; Ellen Meara
  5. The Effect of Sanctions on the Job Finding Rate: Evidence from Denmark By Michael Svarer
  6. Determinants of demand for antenatal care in Colombia By Andrés Vecino Ortiz
  7. Financing unemployment benefits by goods market competition: fiscal policy and deregulation with market imperfections By Antonio Scialà; Riccardo Tilli

  1. By: Mahul, Olivier; Ghesquiere, Francis
    Abstract: Economic theory suggests that countries should ignore uncertainty for public investment and behave as if indifferent to risk because they can pool risks to a much greater extent than private investors can. This paper discusses the general economic theory in the case of developing countries. The analysis identifies several cases where the government ' s risk-neutral assumption does not hold, thus making rational the use of ex ante risk financing instruments, including sovereign insurance. The paper discusses the optimal level of sovereign insurance. It argues that, because sovereign insurance is usually more expensive than post-disaster financing, it should mainly cover immediate needs, while long-term expenditures should be financed through post-disaster financing (including ex post borrowing and tax increases). In other words, sovereign insurance should not aim at financing the long-term resource gap, but only the short-term liquidity need.
    Keywords: Debt Markets,Hazard Risk Management,Banks & Banking Reform,Insurance & Risk Mitigation,Natural Disasters
    Date: 2007–09–01
  2. By: Howard C. Kunreuther; Erwann O. Michel-Kerjan
    Abstract: The 9/11 attacks in the United States, as well as other attacks in different parts of the world, raise important questions related to the economic impact of terrorism. What are the most effective ways for a country to recover from these economic losses? Who should pay for the costs of future large-scale attacks? To address these two questions, we propose five principles to evaluate alternative programs. We first discuss how a federal insurance program with mandatory coverage and a laissez faire free-market approach for providing private insurance will fare relative to these principles. We conclude that neither solution is likely to be feasible here in the United States given the millions of firms at risk and the current structure of insurance regulation. We then evaluate how well the U.S. Terrorism Risk Insurance Act (TRIA), a public-private program to cover commercial enterprises against foreign terrorism on U.S. soil, meets the five principles. In particular, we show that TRIA has had a positive effect on availability of terrorism coverage and also has significantly contributed to reducing insurance premiums. TRIA is scheduled to terminate at the end of the year, but pending legislation would extend the program for fifteen years after December 31 (HR. 2761). In this paper, we show that such a long-term extension might have important impacts on the market. This could increase the take-up rate, as prices might be even lower than they are today. We show also, however, that if TRIA were extended for a long period of time in its current form, some insurers could "game" the program by collecting ex ante a large amount of premiums for terrorism insurance, while being financially responsible for only a small portion of the claims ex post. The general taxpayer and the general commercial policyholder (whether or not covered against terrorism) would absorb the residual insured losses. This raises major equity issues inherent in the design of the program.
    JEL: G22 G28 H56
    Date: 2007–09
  3. By: Makoka, Donald; Kaluwa, Ben; Kambewa, Patrick
    Abstract: This study investigates the determinants of demand for private health insurance among formal sector employees in Malawi, a poor country with heavy pressure on under-funded free government health services. The study is based on membership in the Medical Aid Society of Malawi’s (MASM), three schemes, namely: the VIP, the best; the Executive, the intermediate; and the Econoplan, the minimum. The results indicate that formal sector employees prefer to receive medical treatment from private fee-charging health facilities, where health insurance would be relevant. The study finds that the probability of enrolling in any of MASM’s schemes increases with income and with age for the top and minimum schemes. More children and good health status reduce the probability of enrolling into the two lower schemes. The results suggest the potentially important roles that can be played by information and interventions that address the affordability factor such as through employer contributions that take into consideration income and family size.
    Keywords: Health insurance; MASM; Multinomial logit
    JEL: D1 I1
    Date: 2007
  4. By: Pinka Chatterji; Ellen Meara
    Abstract: Using annual, repeated cross-sections from national household survey data, we estimate how the January 1997 termination of federal disability benefits for those with Drug Addiction and Alcoholism affected labor market outcomes, health insurance, health care utilization, and arrests among individuals targeted by the legislation. We employ propensity score methods and a difference-in-difference-in-difference approach to mitigate potential omitted variables bias. Declines in SSI receipt accompanied increases in labor force participation and current employment, but had little measurable effect on insurance and utilization. In the long-run, (1999-2002), rates of SSI receipt rebounded somewhat, and short-run gains in labor market outcomes waned.
    JEL: I1 I28
    Date: 2007–09
  5. By: Michael Svarer (University of Aarhus, CAM and IZA)
    Abstract: This paper investigates the effect of sanctions of unemployment insurance benefits on the exit rate from unemployment for a sample of Danish unemployed. According to the findings are that even moderate sanctions have rather large effects. For both males and females the exit rate increases by more than 50% following imposition of a sanction. The paper exploits a rather large sample to elaborate on the basic findings. It is shown that harder sanctions have a larger effect, that the effect of sanctions wear out after around 3 months and that particular groups of unemployed are more responsive to sanctions than others. Finally, the analysis suggests that men react ex ante to the risk of being sanctioned in the sense that men who face higher sanction risk leave unemployment faster.
    Keywords: sanctions, unemployment hazard
    JEL: J6 C41
    Date: 2007–08
  6. By: Andrés Vecino Ortiz
    Abstract: Even though antenatal care is universally regarded as important, determinants of demand for antenatal care have not been widely studied. Evidence concerning which and how socioeconomic conditions influence whether a pregnant woman attends or not at least one antenatal consultation or how these factors affect the absences to antenatal consultations is very limited. In order to generate this evidence, a two-stage analysis was performed with data from the Demographic and Health Survey carried out by Profamilia in Colombia during 2005. The first stage was run as a logit model showing the marginal effects on the probability of attending the first visit and an ordinary least squares model was performed for the second stage. It was found that mothers living in the pacific region as well as young mothers seem to have a lower probability of attending the first visit but these factors are not related to the number of absences to antenatal consultation once the first visit has been achieved. The effect of health insurance was surprising because of the differing effects that the health insurers showed. Some familiar and personal conditions such as willingness to have the last children and number of previous children, demonstrated to be important in the determination of demand. The effect of mother’s educational attainment was proved as important whereas the father’s educational achievement was not. This paper provides some elements for policy making in order to increase the demand inducement of antenatal care, as well as stimulating research on demand for specific issues on health.
    Date: 2007–09–03
  7. By: Antonio Scialà (Università di Padova); Riccardo Tilli (Università di Roma)
    Abstract: We consider a model in which the labor market is characterized by search frictions and there is monopolistic competition in the goods market. We introduce proportional income taxation and unemployment benefits with Government balanced budget constraint. Then, we evaluate the effects of both more competition in the goods market and higher unemployment benefits on labor market equilibrium and equilibrium tax rate. We show that more competition has a positive effect on equilibrium unemployment and the Government budget. Higher unemployment benefits can be financed either by higher tax rate or increasing goods market competition. Liberalization policies could permit: a) to avoid an increase in unemployment if we allow some rise in the tax rate; b) to decrease unemployment if they are incisive enough to keep the tax rate unchanged.
    Keywords: Matching Models, Monopolistic Competition, Fiscal Policy, Unemployment Insurance
    JEL: H20 J64 J65
    Date: 2007–09

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