nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒10‒20
four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Estimating the effect of a change in insurance pricing regime on accidents with endogenous mobility. By Georges Dionne; Benoit Dostie
  2. The Welfare Effects of Public Drug Insurance By Darius Lakdawalla; Neeraj Sood
  3. Technical Efficiency of Nigerian Insurance Companies By Carlos Pestana Barros; Echika Lemechi Obijiaku
  4. Optimal Unemployment Insurance in Labor Market Equilibrium when Workers can Self-Insure By Reichling, Felix

  1. By: Georges Dionne (HEC Montréal); Benoit Dostie (IEA, HEC Montréal)
    Abstract: In this paper, we estimate the impact of introducing a bonus-malus system on the probability of having automobile accidents, taking into account contract duration or the client mobility between insurers. We show that the new incentive scheme reduces accident rates of all policyholders when contract duration is taken into account, but does not affect accident rates of movers that shirk the imposed incentive effects of the new insurance pricing scheme.
    Keywords: Bonus-malus; contract duration; automobile accident; Poisson distribution; right- and left-censoring; exponential distribution.
    Date: 2007–09
  2. By: Darius Lakdawalla; Neeraj Sood
    Abstract: Rewarding inventors with inefficient monopoly power has long been regarded as the price of encouraging innovation. Public prescription drug insurance escapes that trade-off and achieves an elusive goal: lowering static deadweight loss, while simultaneously encouraging dynamic investments in innovation. As a result of this feature, the public provision of drug insurance can be welfare-improving, even for risk-neutral and purely self-interested consumers. In spite of its relatively low benefit levels, the Medicare Part D benefit generate $3.5 billion of annual static deadweight loss reduction, and at least $2.8 billion of annual value from extra innovation. These two components alone cover 87% of the social cost of publicly financing the benefit. The analysis of static and dynamic efficiency also has implications for policies complementary to a drug benefit: in the context of public monopsony power, some degree of price-negotiation by the government is always strictly welfare-improving, but this should often be coupled with extensions in patent length.
    JEL: H2 H51 I11
    Date: 2007–10
  3. By: Carlos Pestana Barros; Echika Lemechi Obijiaku
    Abstract: This paper uses data envelopment analysis (DEA) to evaluate the performance of Nigerian insurance companies, from 2001 to 2005, combining operational and financial variables. The paper also analyses the situations of these companies in relation to the frontier of best practices. In addition, it tests for the roles played by dimension, bank network and market share in the efficiency of the Nigerian insurance companies. The implications of this research for managerial purposes are then drawn.
    Keywords: Nigerian insurance companies; Data Envelopment Analysis; Efficiency.
    Date: 2007
  4. By: Reichling, Felix
    Abstract: I develop an equilibrium matching model in which workers have preferences over consumption and hours of work and are able to self-insure against unemployment risks by accumulating precautionary wealth. Wages and working hours are the outcomes of Nash bargaining between workers and firms. I focus on an unemployment insurance (UI) system with constant benefits of indefinite duration financed through a constant labor income tax. Low-wealth individuals work unusually long hours to quickly accumulate precautionary wealth. The Frisch elasticity of labor supply governs a worker’s utility cost of supplying labor and hence the cost of accumulating precautionary wealth. A lower elasticity implies a higher utility cost of adjusting hours. I take Frisch elasticities from recent research using household data and find that the optimal level of UI benefits is between 34 and 40 percent of average compensation. The potential welfare gains from moving from current 34 percent to the optimal policy are as large as 0.13 percent of lifetime consumption. The optimal replacement rate is decreasing in the Frisch elasticity of labor supply.
    Keywords: Unemployment insurance; Labor supply; Matching equilibrium; Self-insurance
    JEL: J22 H00 J65 E24
    Date: 2006–11–06

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