nep-ias New Economics Papers
on Insurance Economics
Issue of 2008‒08‒31
four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. New Evidence on the Motherhood Wage Gap By Amuedo-Dorantes, Catalina; Kimmel, Jean
  2. The Costs and Benefits of Reinsurance By J. David Cummins; Georges Dionne; Robert Gagné; Abdelhakim Nouira
  3. Job loss does not cause ill health By Martin Salm
  4. What Good Is Wealth without Health? The Effect of Health on the Marginal Utility of Consumption By Finkelstein, Amy; Luttmer, Erzo F. P.; Notowidigdo, Matthew J.

  1. By: Amuedo-Dorantes, Catalina (San Diego State University, California); Kimmel, Jean (Western Michigan University)
    Abstract: Using data from the 1979 National Longitudinal Survey of Youth, we assess the role of employment-based health insurance offers in explaining the motherhood wage gap. Researchers have been aware of the existence of a motherhood gap for many years; yet, the literature has failed to address the role of non-wage compensation in explaining the motherhood wage gap despite the increasing importance of non-wage benefits in total compensation packages. As hedonic wage theory suggests, mothers might view health benefits as desirable and trade-off wages for health insurance. Thus, lower wages for mothers might reflect their relative preferences for jobs offering health insurance. We estimate an endogenous switching wage equation model to account for the self-selection and, thus, endogeneity of having an employment-based health insurance offer. We find that, once the endogeneity of having an employment-based health insurance offer is accounted for, the motherhood wage gap disappears.
    Keywords: motherhood wage gap, non-wage compensation, health insurance
    JEL: J01 J31 J33 J16
    Date: 2008–08
  2. By: J. David Cummins; Georges Dionne (HEC Montréal); Robert Gagné (IEA, HEC Montréal); Abdelhakim Nouira
    Abstract: Purchasing reinsurance reduces insurers’ insolvency risk by stabilizing loss experience, increasing capacity, limiting liability on specific risks, and/or protecting against catastrophes. Consequently, reinsurance purchase should reduce capital costs. However, transferring risk to reinsurers is expensive. The cost of reinsurance for an insurer can be much larger than the actuarial price of the risk transferred. In this article, we analyze empirically the costs and the benefits of reinsurance for a sample of U.S. property-liability insurers. The results show that reinsurance purchase increases significantly the insurers’ costs but reduces significantly the volatility of the loss ratio. With purchasing reinsurance, insurers accept to pay higher costs of insurance production to reduce their underwriting risk.
    Keywords: reinsurance, insolvency risk, risk management, financial intermediation, cost functions, panel data.
    Date: 2008–06
  3. By: Martin Salm (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: I use longitudinal data from the Health and Retirement Study to estimate the effect of job loss on health for near elderly employees. Job loss is a major cause of economic insecurity for working age individuals, and can cause reduction in income, and loss of health insurance. To control for possible reverse causality, this study focuses on people who were laid off for an exogenous reason - the closure of their previous employers’ business. I find that the unemployed are in worse health than employees, and that health reasons are a common cause of job termination. In contrast, I find no causal effect of exogenous job loss on various measures of health. This suggests that the inferior health of the unemployed compared to the employed could be explained by reverse causality. I also use instrumental variable regression to estimate the effect of loss of health insurance, loss of income, and re-employment on health, and again find no statistically significant effects.
    Date: 2008–08–19
  4. By: Finkelstein, Amy (Massachusetts Institute of Technology); Luttmer, Erzo F. P. (Harvard U); Notowidigdo, Matthew J. (Massachusetts Institute of Technology)
    Abstract: We estimate how the marginal utility of consumption varies with health. To do so, we develop a simple model in which the impact of health on the marginal utility of consumption can be estimated from data on permanent income, health, and utility proxies. We estimate the model using the Health and Retirement Study’s panel data on the elderly and near-elderly, and proxy for utility with measures of subjective well-being. We find robust evidence that the marginal utility of consumption declines as health deteriorates. Our central estimate is that a one-standard¬deviation increase in the number of chronic diseases is associated with an 11 percent decline in the marginal utility of consumption relative to this marginal utility when the individual has no chronic diseases. The 95 percent confidence interval allows us to reject declines in marginal utility of less than 2 percent or more than 17 percent. Point estimates from a wide range of alternative specifications tend to lie within this confidence interval. We present some simple, illustrative calibration results that suggest that state dependence of the magnitude we estimate can have a substantial effect on important economic problems such as the optimal level of health insurance benefits and the optimal level of life-cycle savings.
    JEL: D12
    Date: 2008–06

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