nep-ias New Economics Papers
on Insurance Economics
Issue of 2008‒07‒20
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. On Bundling in Insurance Markets By Maarten C. W. Janssen; Vladimir A. Karamychev
  3. Impact of Private Health Insurance on the Choice of Public versus Private Hospital Services By Srivastava, P; Zhao, X
  4. The Effects of Liberalization and Deregulation on the Performance of Financial Institutions: The Case of the German Life Insurance Market By Lucinda Trigo Gamarra
  5. The Recipient Value and Distributional Impact of the Commonwealth Seniors Health Card in 2007 By Siminski, Peter
  6. Too Much for Self-Insurance? Asian Foreign Reserves By Yuko Hashimoto

  1. By: Maarten C. W. Janssen; Vladimir A. Karamychev
    Abstract: This paper analyzes the welfare consequences of bundling different risks in one insurance contract in markets where adverse selection is important. This question is addressed in the context of a competitive insurance model a la Rothschild and Stiglitz (1976) with two sources of risk. Accordingly, there are four possible types of individuals and many incentive compatibility constraints to be considered. We show that the effect of bundling on these incentive compatibility constraints is such that bundling always yields a welfare improvement, and this result only holds when all four types have strictly positive shares in the population. Due to the competition between insurance companies, these benefits accrue to consumers who potentially have fewer contracts to choose from, but benefit from the better sorting possibilities due to bundling.
    JEL: G22 D82
    Date: 2008–07
  2. By: Olufunke A. Alaba (Department of Economics, University of Pretoria); Steven F. Koch (Department of Economics, University of Pretoria)
    Abstract: In developing countries, health insurance is not a commonly purchased nancial instrument. Recent debates have revolved around extending health insurance coverage to a wider range of the population, primarily via compulsory insurance schemes. However, the debate rarely considers the competing demands placed on the family budget. In this paper, we have examined expenditure substitution patterns for both insured and uninsured households in a highly unequal developing country allowing for selection on insurance status. Our analysis suggests that expansion of health insurance coverage via compulsory schemes will create additional burdens for households, especially in terms of food purchases, and are, therefore, likely to require simultaneously implemented welfare or subsidy policies in order to be eective. It is not clear, then, that the benets of a compulsory insurance scheme will outweigh the additional costs in terms of behavioural constraints, scal constraints and public sector service delivery capacity constraints.
    Keywords: Treatment Effects, Hazard
    JEL: I11 G22 D14
    Date: 2008–07
  3. By: Srivastava, P; Zhao, X
    Abstract: The Australian health system is characterised by a mix of public and private service and private health insurance is used in addition to a compulsory universal public insurance to finance health services. A series of reforms have been implemented over the years in order to expand the private sector with the objective to relieve the overburdened public health care system. While private coverage has expanded, a large proportion of the privately insured still opt for public treatment in hospitals. The objective of this paper is to investigate the determinants of individuals’ choice between public and private hospital services, in particular, the impact of private health insurance status. It estimates a recursive trivariate probit system model with partial observability that allows for endogeneity of private insurance participation and potential selection bias as we only observe individuals’ public/private choices for those who have visited a hospital in the past 12 months. Relative to the prevailing two-step estimation for sample selection or endogenous treatment, our full information maximum likelihood (FIML) approach is both consistent and efficient. The study identifies private health insurance status and income as important determinants of private hospital care utilisation. An individual with a private hospital cover has nearly 70 per cent higher chance to opt for private treatment in a hospital and a person within the tenth income decile group has 46 per cent higher probability to seek private hospital care than someone who falls in the third or lower income decile groups. To some extent other factors such as perceived quality of care in the public sector and cost of access are also found to have some impact on the use of private hospital care.
    Keywords: Hospital utilisation, Public/Private health care, Private health insurance, FIML
    Date: 2008–07
  4. By: Lucinda Trigo Gamarra (University of Rostock)
    Abstract: The German insurance market was liberalized in 1994 by the introduction of the ‘single passport’ allowing European insurers to operate throughout the entire European Union. The European directive put also an end to price and insurance contract terms regulation. These measures were meant for removing the obstacles to competition within and between the insurance markets of the member states aiming at an increased efficiency of the European insurance markets. We analyze to which extent this aim has been achieved in the German life insurance market. The development of market performance is measured by changes in technical cost and profit efficiency levels since the liberalization, as well as a measurement of technological change. Technical cost efficiency levels are estimated by applying a stochastic “true” fixed effects distance frontier (Greene, 2005). Non-standard profit efficiency is derived in a second step following Kumbakhar (2006). According to our results, the industry experienced positive total factor productivity (TFP) growth during the observation period, which is mainly driven by substantial positive technological change. Technical cost efficiency and profit efficiency remained stable on average, but significant positive scale efficiency change can be found indicating that market consolidation in the presence of increasing returns to scale led to efficiency gains of the firms.
    Keywords: Insurance markets, Total factor productivity growth, Stochastic Frontier Analysis
    JEL: D24 G22 G28
    Date: 2008
  5. By: Siminski, Peter (University of Wollongong)
    Abstract: This paper considers the recipient value  and distributional impact of the Common wealth Seniors Health Card (CSHC) by ana lysing a range of possible behavioural r esponses to economic incentives. First,  I estimate the recipient value by consid ering the trade-off between moral hazard  and risk pooling. The utility gain thro ugh risk-pooling is found to be negligib le. The deadweight loss through moral ha zard may be considerable. I also use ill ustrative models to demonstrate the poss ible effects of the CSHC on savings and  labour supply. Whilst the CSHC may induc e some people to save and work more, it  may have the opposite effect on others.
    Keywords: distributional impact, health insurance, recipient value, Australia, retirement 
    JEL: H42 H31 H51 D91
    Date: 2008
  6. By: Yuko Hashimoto (Toyo University, International Monetary Fund, Hong Kong Institute for Monetary Research)
    Abstract: This paper attempts to identify whether the recent foreign reserve accumulation in Asian economies has been too extraordinary to recover the moderate level of reserves which depleted at the time of the currency crisis in 1997-1998. First of all, the level of reserves numerated by various economic fundamentals such as broad money, imports and short-term external debt in Asian economies was examined in order to judge whether the level was high enough to weather speculative pressures at the onset of the crisis in 1997. The analysis is based on a Brownian motion model with an absorbing barrier. Although most Asian economies appeared to have larger reserves (reserve indicators) than the estimated threshold at the time of the crisis of 1997, reserves in terms of short-term external debt were apparently not sufficient to avoid speculative attacks. Then, based on the estimated threshold of reserve indicators, the likelihood of a 25% devaluation within three months ahead is calculated. Probabilities of currency devaluation vary from time to time, among countries, and among reserve indicators. The devaluation likelihood was modest in the mid 1990s, but then it showed a big jump in 1997 in Indonesia, Thailand, Korea, and Philippines.
    Keywords: foreign reserves, accumulation, Asia, threshold, currency crisis
    Date: 2008–06

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