nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒12‒15
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  2. Statistical analysis of rainfall insurance payouts in southern India By Vickery, James; Townsend, Robert; Gine, Xavier
  3. Insurance Markets When Firms Are Asymmetrically Informed: A Note By Jason Strauss; Aidan Michael Hollis
  4. Insurance, credit, and technology adoption : field experimental evidence from Malawi By Yang, Dean; Gine, Xavier
  5. Business Cycle Synchronization and Insurance Mechanisms in the EU By António Afonso; Davide Furceri
  6. Cooperatives and Area Yield Insurance:A Theoretical Analysis By Pincheira, Pablo; Zeuli, Kimberly
  7. Family ties, incentives and development: a model of coerced altruism By Alger, Ingela; Weibull, Jörgen
  8. Population Ageing, Taxation, Pensions and Health Costs By Patricia Apps; Ray Rees; Margi Wood

  1. By: Priscila Pereira Deliberalli
    Date: 2007
  2. By: Vickery, James; Townsend, Robert; Gine, Xavier
    Abstract: Using 40 years of historical rainfall data, this paper estimates a distribution for payouts on rainfall insurance policies offered to farmers in the State of Andhra Pradesh, India, in 2006. The authors find that the contracts primarily protect households against extreme tail events; half the expected value of indemnities paid by the insurance are generated by only 2 percent of rainfall realizations. Contract payouts are significantly correlated cross-sectionally, and also inversely associated with real GDP growth. The paper discusses the implications of these findings for the potential benefits of insurance to households, the risks facing a financial institution underwriting rainfall insurance contracts, and pricing.
    Keywords: Debt Markets,Deposit Insurance,Labor Policies,,Emerging Markets
    Date: 2007–12–01
  3. By: Jason Strauss; Aidan Michael Hollis
    Abstract: We examine welfare effects of the entry of a single well-informed insurance firm into a competitive insurance market. We show that the effect depends on the structure of the market. If competitive insurers rely on the standard self-selection mechanism of a menu of contracts, then the entry of a single well-informed firm which can discriminate costlessly between consumer risk types will increase welfare. In contrast, if consumers do not know their own risk type, then the introduction of a well-informed insurer may reduce welfare.
    JEL: G22 L15
    Date: 2007–11–30
  4. By: Yang, Dean; Gine, Xavier
    Abstract: The adoption of new agricultural technologies may be discouraged because of their inherent riskiness. This study implemented a randomized field experiment to ask whether the provision of insurance against a major source of production risk induces farmers to take out loans to invest in a new crop variety. The study sample was composed of roughly 800 maize and groundnut farmers in Malawi, where by far the dominant source of production risk is the level of rainfall. We randomly selected half of the farmers to be offered credit to purchase high-yielding hybrid maize and improved groundnut seeds for planting in the November 2006 crop season. The other half of the farmers were offered a similar credit package but were also required to purchase (at actuarially fair rates) a weather insurance policy that partially or fully forgave the loan in the event of poor rainfall. Surprisingly, take up was lower by 13 percentage points among farmers offered insurance with the loan. Take-up was 33.0 percent for farmers who were offered the uninsured loan. There is suggestive evidence that the reduced take-up of the insured loan was due to the high cognitive cost of evaluating the insurance: insured loan take-up was positively correlated with farmer education levels. By contrast, the take-up of the uninsured loan was uncorrelated with farmer e ducation.
    Keywords: ,Access to Finance,Debt Markets,Hazard Risk Management,Crops & Crop Management Systems
    Date: 2007–12–01
  5. By: António Afonso; Davide Furceri
    Abstract: In this paper we provide a positive exercise on past business-cycle correlations and risk sharing in the European Union, and on the ability of insurance mechanisms and fiscal policies to smooth income fluctuations. The results suggest in particular that while some of the new Member States have well synchronized business cycles, for some of the other countries, business cycles are not yet well synchronized with the euro area’s business cycle, and risk-sharing mechanisms may not provide enough insurance against shocks.
    Keywords: EU; Optimum Currency Areas; Business Cycle Synchronization; Insurance Mechanisms.
    JEL: E32 E42 F41 F42
    Date: 2007
  6. By: Pincheira, Pablo; Zeuli, Kimberly
    Abstract: The purpose of this paper is to theoretically investigate the potential benefits that arise from a cooperative selling a government subsidized area-yield contract (i.e., the Group Risk Plan). The indeminities in area-yield contracts are triggered by a geographically determined yield (e.g., a county-wide yield average) instead of the more conventional individual actual production history. Therefore, an area-yield contract would be appropriate for managing the cooperative's systemic throughput risk. The cooperative would also capture some of the substantial government subsidies that are normally given to a private insurance company. Our primary finding is that farmers should be indifferent when considering the decision to purchase area-yield insurance from a private company or encompass that business in their cooperative. We derive this result for the specific case of costless insurance and assume a Pareto Optimal contract. Under these assumptions, the government subsidies that the cooperative would hope to capture are simply a net deduction in their premiums. In other words, the benefit they capture from the subsidies is the same when they purchase the insurance from an outside firm or internally.
    Keywords: Cooperatives; Area Yield Insurance; Optimal indemnity.
    JEL: D6 L3 Q13 D8
    Date: 2007–12
  7. By: Alger, Ingela (Carleton University); Weibull, Jörgen (Dept. of Economics, Stockholm School of Economics)
    Abstract: We analyze the effects of family ties on the incentives for production of effort, where family ties are defined as a mixture of true and coerced altruism between family members. We model families as pairs of siblings. Each sibling exerts effort in order to obtain output under uncertainty. A social norm dictates that a sibling with a high output must share a specified amount of this output with his sibling, if the latter's output is low. Siblings may be truly altruistic towards each other, but not to a larger degree than dictated by the social norm. We compare such informal family insurance with actuarially fair formal insurance. We show that coerced family altruism reduces individual efforts in equilibrium. However, individuals always benefit ex ante from living in families with coerced altruism, as compared with living in autarky. We show that a certain degree of coerced family altruism is robust as a social norm in a society of selfish individuals. Finally, we show that if family members are sufficiently altruistic to each other, then informal family insurance by way of coerced altruism may outperform actuarially fair insurance programs.
    Keywords: altruism; coerced altruism; family ties; insurance; moral hazard
    JEL: D02 D13
    Date: 2007–10–24
  8. By: Patricia Apps; Ray Rees; Margi Wood
    Abstract: This paper argues against the policy position that begins with a doomsday scenario of publicly provided health insurance and pension systems threatened with collapse under the stresses imposed by population ageing, and instead contends that the threat of crisis in these systems is policy driven. The central thesis of the paper is that a range of policies lead to the creation of an ageing crisis by inhibiting the efficient reallocation of female labour from the home to the market in response to the decline in fertility. The analysis focuses on family support policies that create large effective tax burdens on female labour supply, by means testing the support on family income, or selectively on the second income. Examples include Family Tax Benefit Part A and Part B, the Medicare Levy and the Medicare Safety Net. The analysis draws on household survey data to show that female labour supply is strongly positively associated with household saving, the purchase of private health insurance and spending on family health generally. Policies that inhibit female labour supply therefore have the effect of reducing the tax base for funding public pensions and health care, while simultaneously reducing the capacity of families to fund them privately.
    Keywords: life cycle, health costs, pensions, household taxation
    JEL: D19 I18 J26
    Date: 2007–11

This nep-ias issue is ©2007 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.