nep-ias New Economics Papers
on Insurance Economics
Issue of 2008‒02‒02
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Covering the Uninsured in the U.S. By Jonathan Gruber
  2. The Efficient Liability Sharing Factor For Environmental Disasters: Lessons For Optimal Insurance Regulation By Marcel Boyer; Donatella Porrini
  3. Insurance Purchase for Low-Probability Losses By Susan K. Laury; Melayne Morgan McInnes; J. Todd Swarthout
  4. Fear and Market Failure: Global Imbalances and “Self-Insurance” By Marcus Miller; Lei Zhang
  5. Optimal taxation of entrepreneurial capital with private information By Stefania Albanesi
  6. Risk sharing opportunities and macroeconomic factors in Latin American and Caribbean countries : A consumption insurance assessment By Ventura, Luigi
  7. The Value of a Statistical Life By Andersson, Henrik; Treich, Nicolas
  8. Social influence and neighbourhood effects in the health care market. By Montefiori, Marcello; Resta, Marina

  1. By: Jonathan Gruber
    Abstract: One of the major social policy issues facing the U.S. in the first decade of the 21st century is the large number of Americans lacking health insurance. This article surveys the major economic issues around covering the uninsured. I review the facts on insurance coverage and the nature of the uninsured; focus on explanations for why the U.S. has such a large, and growing, uninsured population; and discuss why we should care if individuals are uninsured. I then focus on policy options to address the problem of the uninsured, beginning with a discussion of the key issues and available evidence, and then turning to estimates from a micro-simulation model of the impact of alternative interventions to increase insurance coverage.
    JEL: H1 I1
    Date: 2008–01
  2. By: Marcel Boyer; Donatella Porrini
    Abstract: Using a structural model of the interactions between governments, firms and insurance companies, we characterise the distortions in environmental liability sharing between firms and insurance companies that the imperfect implementation of government policies implies. These distortions stem from three factors: the presence of moral hazard, the non congruence between firms/insurers objectives and social welfare, and the courts’ imperfect assessment of safety care levels exerted by firms. We characterize cases where the efficient liability sharing factor is above or below its full information perfect implementation level. We derive comparative statics results indicating how sensitive the liability sharing factor is to changes in parameters (parameters that underlie the firm profit level and volatility, the cost of safety care, the monitoring cost, the social cost of public funds, the effectiveness of care in reducing the probability of accident) that are relevant for the characterization of optimal policies (liability sharing, safety care standards) toward environmental protection or the prevention of industrial accidents. We derive policy implications regarding environmental disaster insurance policies. <P>À l’aide d’un modèle structurel des interactions entre les gouvernements, les entreprises et les assureurs, nous caractérisons les distorsions dans le partage des responsabilités entre entreprises et assureurs qu’implique la mise en place imparfaite des politiques gouvernementales. Ces distorsions résultent de trois facteurs : la présence de risque moral, la non-congruence des objectifs des entreprises, des assureurs et de bien-être social, et l’observation imparfaite des efforts de prévention des entreprises par le système judiciaire. Nous dérivons des résultats de statique comparée montrant la sensibilité du facteur de partage des responsabilités à des changements dans les paramètres sous-jacents à la profitabilité, au coût des efforts de prévention, à l’efficacité de ces efforts dans la réduction de la probabilité d’accident, au coût de monitoring, au coût social des fonds publics, et qui sont pertinents à la caractérisation des politiques optimales (partage de responsabilité, standard légal du niveau de prévention) de protection environnementale et de prévention des accidents. Nous en déduisons certaines implications quant aux politiques relatives à l’assurance contre les désastres environnementaux.
    Keywords: Liability sharing, environmental insurance, safety care, moral hazard, principal-agent., Partage de responsabilité, assurance environnementale, effort de prévention, risque moral, principal-agent.
    JEL: D82 G32 K13 K32 Q28
    Date: 2008–01–01
  3. By: Susan K. Laury; Melayne Morgan McInnes; J. Todd Swarthout
    Abstract: It is widely accepted that individuals tend to underinsure against low-probability, high-loss events relative to high-probability, low-loss events. This conventional wisdom is based largely on field studies, as there is very little experimental evidence. We reexamine this issue with an experiment that accounts for possible confounds in prior insurance experiments. Our results are counter to the prior experimental evidence, as we observe subjects buying more insurance for low-probability events than the higher-probability events, given a constant expected loss and load factor. Our results suggest that, to the extent underinsurance for catastrophic risk is observed in the field, it can be attributed to factors other than the relative probability of the loss events.
    Keywords: low-probability hazards, insurance, risk, experiments
    JEL: C91 D80
    Date: 2008–01
  4. By: Marcus Miller (University of Warwick and Centre for Economic Policy Research); Lei Zhang (University of Warwick)
    Abstract: This paper proposes an integrated framework to analyze jointly two key issues: the emergence of global imbalances and the precautionary motive for accumulating reserves. Standard models of general equilibrium would predict modest current account surpluses in the emerging markets if they face higher risk than the US itself. But, with pronounced Loss Aversion in emerging markets, their precautionary savings can generate substantial “global imbalances,” especially if there is an inefficient supply of global “insurance.” In principle, lower real interest rates will ensure that aggregate demand equals supply at a global level (though the required real interest may be negative). While a precautionary savings glut appears to be a temporary phenomenon, a process of correction triggered by a “Sudden Stop” in capital flows to the United States might lead to a “hard landing.”
    Keywords: stochastic dynamic general equilibrium, loss aversion, liquidity trap
    JEL: D51 D52 E12 E13 E21 E44 F32
    Date: 2007–10
  5. By: Stefania Albanesi (Department of Economics, Columbia University)
    Abstract: This paper studies optimal taxation of entrepreneurial capital with private information and multiple assets. Entrepreneurial activity is subject to a dynamic moral hazard problem and entrepreneurs face idiosyncratic capital risk. We first characterize the optimal allocation subject to the incentive compatibility constraints resulting from the private information. The optimal tax system implements such an allocation as a competitive equilibrium for a given market structure. We consider several market structures that differ in the assets or contracts traded and obtain three novel results. First, differential asset taxation is optimal. Marginal taxes on bonds depend on the correlation of their returns with idiosyncratic capital risk, which determines their hedging value. Entrepreneurial capital always receives a subsidy relative to other assets in the bad states. Second, if entrepreneurs are allowed to sell equity, the optimal tax system embeds a prescription for double taxation of capital income at the firm level and at the investor level. Finally, we show that taxation of assets is essential even with competitive insurance contracts, when entrepreneurial portfolios are also unobserved.
    JEL: D82 E22 E62 G18 H2 H21 H25 H3
    Date: 2007
  6. By: Ventura, Luigi
    Abstract: This paper evaluates the degree of consumption insurance enjoyed by Latin American and Caribbean countries, with respect to various reference areas, by estimating a parameter expressing the sensitivity of a country ' s consumption growth to a measure of idiosyncratic shocks to income. The paper surveys common econometric implementations of " consumption insurance tests. " The author proposes some econometric procedures in order to detect the actual presence of international risk sharing, as well as to assess the relative impact of idiosyncratic versus aggregate shocks. The evidence suggests that Latin American and Caribbean economies have been hit by non-diversifiable income shocks, that idiosyncratic risk is relatively more important than aggregate risk, and that some countries in the region appear to enjoy a certain amount of international risk diversification. The paper also identifies some macroeconomic factors that may be responsible for a higher or lower degree of risk pooling (such as international openness, financial depth, and credit availability). The findings show that the financial development of an economy is a crucial factor in determining the amount of risk sharing opportunities, as well as public expenditure. The preliminary results also suggest that trade openness and shocks to terms of trade play an important role in determining the degree of insurability of such risks.
    Keywords: Currencies and Exchange Rates,Financial Intermediation,Consumption,Economic Theory & Research,Inequality
    Date: 2008–01–01
  7. By: Andersson, Henrik (VTI); Treich, Nicolas (Toulouse School of Economics (INRA, LERNA))
    Abstract: This paper on the value of a statistical life (VSL) has been prepared for the Handbook in Transport Economics, edited by André de Palma, Robin Lindsey, Emile Quinet and Roger Vickerman. The paper's first objective is to survey some classical theoretical and empirical findings in the VSL literature; but it also attempts to clarify some of these issues often raised by the application of the WTP approach to study of mortality risks.
    Keywords: Mortality Risk; Transport; Value of a Statistical Life; Willingness to Pay
    JEL: D61 D81 I10 Q51
    Date: 2008–01–25
  8. By: Montefiori, Marcello; Resta, Marina
    Abstract: This work is intended to analyze the market for health care through a computational approach based on unsupervised neural networks. The paper provides a theoretical framework for a computational model that relies on Kohonen's self organizing maps (SOM), arranged into two layers: in the upper layer the competition dynamics of health care providers is modelled, whereas in the lower level patients behaviour is monitored. Interactions take place both vertically between the layers (in a bi–directional way), and horizontally, inside each level, exploiting neighbourhood features of SOM: signals move vertically from hospitals to patients and vice-versa, but they also spread out sideward, from patient to patient, and from hospital to hospital. The result is a new approach addressing the issue of hospital behaviour and demand mechanism modelling, which conjugates a robust theoretical implementation together with an instrument of deep graphical impact.
    Keywords: self organizing maps; health market; adaptive behaviour; incomplete information; mixed market
    JEL: I18 C60
    Date: 2008–01

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