nep-ias New Economics Papers
on Insurance Economics
Issue of 2008‒07‒05
thirteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Do unemployment benefits increase unemployment? New evidence on an old question By Fredriksson, Peter; Söderström, Martin
  2. Pricing and Welfare in Health Plan Choice By M. Kate Bundorf; Jonathan D. Levin; Neale Mahoney
  3. State and Federal Approaches to Health Reform: What Works for the Working Poor? By Ellen Meara; Meredith Rosenthal; Anna Sinaiko; Katherine Baicker
  4. Trade-off between formal and informal care in Spain By Sergi Jiménez Martín; Cristina Vilaplana
  5. Social wealth and optimal care By Darri-Mattiacci, Giuseppe; Langlais, Eric
  6. Prompt corrective action provisions: are insurance companies and investment banks next? By Tatom, John / A.
  7. The Politics of Social Policy Reform in the United States: The Clinton and the W. Bush Presidencies Reconsidered By Daniel Béland; Alex Waddan
  8. The Allocation of Economic Capital in Opaque Financial Conglomerates By Mierzejewski, Fernando
  9. What Determines Local Expenditures on Mental Health Care in Sweden Really? By Andersson, Linda; Henriksen, Anna
  10. Toward a Normative Theory of Crop Yield Skewness By Hennessy, David A.
  11. Toward a Normative Theory of Crop Yield Skewness By David A. Hennessy
  12. La probabilidad de supervivencia en un modelo con reaseguro proporcional de umbral By M. Merce Claramunt; Maite Marmol; Anna Castaner
  13. The Health Care Crisis in the United States: The Issues and Proposed Solutions by the 2008 Presidential Candidates By Pareto, Marcos Pompeu

  1. By: Fredriksson, Peter (IFAU - Institute for Labour Market Policy Evaluation); Söderström, Martin (Ministry of Finance, Government of Sweden)
    Abstract: We examine the relationship between unemployment benefits and unemployment using Swedish regional data. To estimate the effect of an increase in unemployment insurance (UI) on unemployment we exploit the ceiling on UI benefits. The benefit ceiling, coupled with the fact that there are regional wage differentials, implies that the generosity of UI varies regionally. More importantly, the actual generosity of UI varies within region over time due to variations in the benefit ceiling. We find fairly robust evidence suggesting that the actual generosity of UI does matter for regional unemployment. Increases in the actual replacement rate contribute to higher unemployment as suggested by theory. We also show that removing the wage cap in UI benefit receipt would reduce the dispersion of regional unemployment. This result is due to the fact that low unemployment regions tend to be high wage regions where the benefit ceiling has a greater bite. Removing the benefit ceiling thus implies that the actual generosity of UI increases more in low unemployment regions.
    Keywords: Unemployment; Unemployment insurance; Unemployment dispersion
    JEL: J64 J65
    Date: 2008–05–20
  2. By: M. Kate Bundorf; Jonathan D. Levin; Neale Mahoney
    Abstract: Prices in government and employer-sponsored health insurance markets only partially reflect insurers' expected costs of coverage for different enrollees. This can create inefficient distortions when consumers self-select into plans. We develop a simple model to study this problem and estimate it using new data on small employers. In the markets we observe, the welfare loss compared to the feasible efficient benchmark is around 2-11% of coverage costs. Three-quarters of this is due to restrictions on risk-rating employee contributions; the rest is due to inefficient contribution choices. Despite the inefficiency, we find substantial benefits from plan choice relative to single-insurer options.
    JEL: D40 D61 D82 I11 L11
    Date: 2008–06
  3. By: Ellen Meara; Meredith Rosenthal; Anna Sinaiko; Katherine Baicker
    Abstract: We compare and contrast the labor market and distributional impact of three common approaches to state and federal health insurance expansion: public insurance expansions, refundable tax credits for low income people, and employer and individual mandates. We draw on existing estimates from the literature and individual-level data on the non-institutionalized population aged 64 and younger from the 2005 Current Population Survey to estimate how each approach affects (1) the number of people insured; (2) private and public health spending; (3) employment and wages; and (4) the distribution of subsidies across families based on income in relation to the federal poverty level and work status of adult family members. Employer mandates expand coverage to the largest number of previously insured relative to public insurance expansions and individual tax credits, but with potentially negative labor market consequences. Medicaid expansions could achieve moderate reductions in the share of the uninsured with neutral labor market consequences, and by definition, they expand coverage to the poorest groups regardless of work status. Tax credits extend coverage to relatively few uninsured, but with neutral effects on the labor market. Both Medicaid expansions and tax credits offer moderate redistribution to previously insured individuals who are poor or near-poor. None of the three policies significantly expand insurance coverage among poor working families. Our findings suggest that no single approach helps the working poor in exactly the ways policy makers might hope. To the extent that states are motivated to help the uninsured in poor working families, health reforms must find ways to include those unlikely to take up optional policies, and states must address the challenge of the many uninsured likely to be excluded from policies based on part-time work status, firm size, or immigration status.
    JEL: I1 I11 J3
    Date: 2008–06
  4. By: Sergi Jiménez Martín; Cristina Vilaplana
    Abstract: The remarkable growth of older population has moved long term care to the front ranks of the social policy agenda. Understanding the factors that determine the type and amount of formal care is important for predicting use in the future and developing long-term policy. In this context we jointly analyze the choice of care (formal, informal, both together or none) as well as the number of hours of care received. Given that the number of hours of care is not independent of the type of care received, we estimate, for the first time in this area of research, a sample selection model with the particularity that the first step is a multinomial logit model. With regard to the debate about complementarity or substitutability between formal and informal care, our results indicate that formal care acts as a reinforcement of the family care in certain cases: for very old care receivers, in those cases in which the individual has multiple disabilities, when many care hours are provided, and in case of mental illness and/or dementia. There exist substantial differences in long term care addressed to younger and older dependent people and dependent women are in risk of becoming more vulnerable to the shortage of informal caregivers in the future. Finally, we have documented that there are great disparities in the availability of public social care across regions.
    Date: 2008–06
  5. By: Darri-Mattiacci, Giuseppe; Langlais, Eric
    Abstract: Many accidents result in losses that cannot be perfectly compensated by a monetary payment. Moreover, often injurers control the magnitude rather than the probability of accidents. We study the characteristics of optimal levels of care and distribution of risk under these circumstances and show that care depends on the aggregate wealth of society but does not depend on wealth distribution. We then examine whether ordinary liability rules, regulation, insurance, taxes and subsidies can be used to implement the first-best outcome. Finally, our results are discussed in the light of fairness considerations (second best).
    Keywords: accidents; risk; wealth; care; bodily injury.
    JEL: K13
    Date: 2008–06–27
  6. By: Tatom, John / A.
    Abstract: In 1991, Congress passed the Federal Deposit Insurance Corporation Improvement Act (FDICIA). The Act provided for risk-based deposit insurance premiums, put explicit limits on the application of a “too big to fail” principle for banks and required that examiners implement “prompt corrective action” (PCA) standards for banks. Essentially these steps were to improve the functioning of the FDIC, especially removing discretion of the examiners in the process of addressing the risk of failure of banks and providing explicit requirements of managing the deteriorating risk of failure and providing for rising insurance premiums for such banks. In particular, PCA established a set of capital benchmarks and required regulator actions that removed privileges for banks to manage their capital and payments of income to share holders and bank creditors as the capital position of the bank deteriorated and the risk of failure rose. In effect regulators could take preemptive action to keep banks from depleting their capital as their capital positions deteriorate. These provisions have drawn increasing public attention in the past year for very different reasons. First, Senate Bill 40, The National Insurance Act (NIA), which provides new opportunities for insurance companies to obtain their charters and to be regulated by a federal government entity instead of only the state governments, also requires that the new federal regulator develop and apply prompt corrective action provisions to the supervision of federally chartered insurance companies. The second reason that these provisions have drawn attention recently is the near failure and sale of Bear Stearns. The Federal Reserve helped arrange the sale of Bear Stearns in March 2008, with the sale to be completed shortly, to preempt its failure and consequent effects on other financial institutions. At about the same time the U.S. Department of Treasury released it long awaited “Blueprint for a Modernized Federal Financial Regulatory Structure,” that called for the Board of Governors of the Federal Reserve System to have broad regulatory power over all financial institutions on issues related to financial market stability. These actions call attention to the absence of regulatory oversight powers by the Fed, in particular, enabling legislation that would allow the Fed to close investment banks or other failed or failing institutions in the same way that they can or must close such banks. PCA is on the horizon for insurance companies, investment banks and other financial institutions subject to regulation.
    Keywords: Prompt corrective action; capital requirements; financial regulatory reform; Basel II
    JEL: G22 G28 G21
    Date: 2008–05–30
  7. By: Daniel Béland; Alex Waddan
    Abstract: The purpose of this paper is to examine what key reform attempts during the Bill Clinton and George W. Bush presidencies reveal about the wider possibilities for social policy change in the United States. Most particularly, why were Presidents Clinton and Bush able to achieve their goals in some policy realms but so badly defeated in others? As argued, institutional variation from one policy area to another helps answer this question. On the one hand, strong institutional obstacles in the fields of Social Security and health insurance largely explain the defeat of the most ambitious social policy proposal put forward by each president. On the other hand, successful reforms occurred in a comparatively favourable institutional context. Yet, the analysis also suggests that paying close attention to the strategic ideas of political actors as they interact with existing institutions and policy legacies is necessary to fully understand the politics of social policy reform.
    Keywords: social policy, Medicare, Social Security, welfare, institutions, United States
    JEL: H55 I38
    Date: 2008–06
  8. By: Mierzejewski, Fernando
    Abstract: The capital structure of firms that face restrictions on liquidity (i.e. that cannot hedge continuously) is affected by the agency costs and moral-hazard implicit in the contracts they establish with stockholders and customers. It is demonstrated in this paper that then an optimal level of capital exists, which is characterised in terms of the actuarial prices of the involved agreements. The capital principle so obtained explicitly depends on risk and expectations and it can be naturally applied to allocate balances inside multidivisiona corporations. In particular, an optimal decentralised mechanism is defined, which stimulates the exchange of information between central and divisional administrations. A novel model of capital is thus formulated, which extends the classic theoretical framework (sustained by the well-known proposition of Modigliani and Miller and the model of deposit insurance of Robert Merton) and integrates the financial and actuarial theoretical settings.
    Keywords: Economic Capital; Capital Allocation; Deposit Insurance; Distorted Risk principle; Value-at-Risk;
    JEL: G32 G30 G10 G20
    Date: 2008–07–03
  9. By: Andersson, Linda (Department of Business, Economics, Statistics and Informatics); Henriksen, Anna (Department of Business, Economics, Statistics and Informatics)
    Abstract: The objective of this paper is to analyze the determinants of local expenditures on mental health care in Sweden. We use a unique dataset that identifies the localities’ expenditures explicitly directed towards mental health care. Based on these data we find that there is increasing returns to scale in the provision of local mental health services in terms of population. However, it appears as if local policy variables, local earnings potential (economic opportunities), geographical area or other indicators that have been put forward in the debate, cannot explain the large variation in local expenditures on mental health care in
    Keywords: local expenditures; mental health care
    JEL: H72 I18 I38
    Date: 2008–06–25
  10. By: Hennessy, David A.
    Abstract: While the preponderance of empirical studies point to negative crop yield skewness in a wide variety of contexts, the literature provides few clear insights on why this is so. The purpose of this paper is to make three points on the matter. We show formally that statistical laws on aggregates do not suggest a normal yield distribution. We explain that whenever the weather-conditioned mean yield has diminishing marginal product, then there is a disposition toward negative skewness in aggregate yields. This is because a high marginal product in bad weather states stretches out the left tail of the yield distribution relative to that of the weather distribution. Turning to disaggregated yields, we decompose unconditional skewness into weather-conditioned skewness plus two other terms and study each in turn.
    Keywords: conditional distribution, crop insurance, negative skewness, spatial heterogeneity, statistical laws.
    Date: 2008–06–25
  11. By: David A. Hennessy (Center for Agricultural and Rural Development (CARD))
    Abstract: While the preponderance of empirical studies point to negative crop yield skewness in a wide variety of contexts, the literature provides few clear insights on why this is so. The purpose of this paper is to make three points on the matter. We show formally that statistical laws on aggregates do not suggest a normal yield distribution. We explain that whenever the weather-conditioned mean yield has diminishing marginal product, then there is a disposition toward negative skewness in aggregate yields. This is because a high marginal product in bad weather states stretches out the left tail of the yield distribution relative to that of the weather distribution. Turning to disaggregated yields, we decompose unconditional skewness into weather-conditioned skewness plus two other terms and study each in turn.
    Keywords: conditional distribution, crop insurance, negative skewness, spatial heterogeneity, statistical laws.
    Date: 2008–06
  12. By: M. Merce Claramunt; Maite Marmol; Anna Castaner (Universitat de Barcelona)
    Abstract: In this paper we present a new reinsurance strategy, called threshold strategy, that has a different behaviour depending on the reserves. Whenever the reserves are less than a certain level, the portfolio manager decides to apply a proportional reinsurance. If the reserves are greater than b, it is considered that the level of solvency is enough, and then the decision is not ceding any risk. The study of the effect of the introduction of the threshold reinsurance on the survival probability, and the comparison with the proportional reinsurance and the option of not reinsuring, allows us to find equivalent strategies of reinsurance from the solvency point of view.
    Keywords: survival probability, proportional reinsurance, threshold reinsurance, risk theory
    JEL: G22
    Date: 2008
  13. By: Pareto, Marcos Pompeu
    Abstract: The United States has state of the art technology and world renowned expertise in medical treatment, yet in terms of healthcare it shows a dramatically poor performance in relation to the other industrialized countries. This situation is surprising, since one would expect that a free market system run almost entirely by the private sector should show a much better performance. This issue has reached the point of being one of the most important national concerns and the subject of serious political and economic arguments - not only regarding how the system should be improved, but also whether it should remain being run by the private sector under a free market approach or whether it should be run by the government and made accessible to the entire population. The first option is supported by the arguments that public initiatives often perform poorly and that free-market competition should prevail. Contrarily, the other side claims that the system is only nominally a free market, that empirical evidence shows it's not working as it should, and that other successful healthcare systems are mostly government operated. As is stands, the health care issue acquired national importance and is presented as a major component of both presidential candidates programs, yet each favoring a different approach to improve accessibility and lower healthcare costs. Republican Senator McCain relies on improving the system by maintaining its current private enterprise, free market characteristics, while Democratic Senator Barrack Obama favours providing universal coverage and lower costs through a higher government intervention in the system. This paper examines the approaches proposed by both candidates and analyses the potential impact their plans may have on the health care system. While the lack of more detailed implementation details makes difficult accessing the effective result of each policy, the comparative review of the alternative approaches presented in this paper will help the reader to to judge for him or herself which could be the more appropriate to upgrade the system and attain a higher performance level.
    Keywords: Elections; General Elections; 2008; President; United States; Health Care; Healthcare; Crisis; McCain; Obama; Barack; Democrat; Republican; Private Market; Universal Healthcare; Competition
    JEL: I11 H51 H11 I18 D43 I10
    Date: 2008–06–18

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