nep-ias New Economics Papers
on Insurance Economics
Issue of 2008‒09‒13
eleven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. The Effect of Medicare Coverage for the Disabled on the Market for Private Insurance By John F. Cogan; R. Glenn Hubbard; Daniel P. Kessler
  2. A Continuous Model of Income Insurance By Lindbeck, Assar; Persson, Mats
  3. "Lasso-Quantile Regression and its Application to a Non-life Insurance Problem"(in Japanese) By Kengo Kato; Naoto Kunitomo; Satoshi Masuda
  4. Investigating the Impact of climate change on the robustness of index-based microinsurance in Malawi By Hochrainer, S.; Mechler, R.; Pflug, G.; Lotsch, A.
  5. Job Search and Unemployment Insurance: New Evidence from Time Use Data By Krueger, Alan B.; Mueller, Andreas
  6. Integrating seasonal forecasts and insurance for adaptation among subsistence farmers : the case of Malawi By Osgood, Daniel E.; Suarez, Pablo; Hansen, James; Carriquiry, Miguel; Mishra, Ashok
  7. An evaluation of the initial impact of the medical assistance program for the poor in Georgia By Hou, Xiaohui; Chao, Shiyan
  8. Insurers : too many, too few, or"just right"? initial observations on a cross-country dataset of concentration and competition measures By Thorburn, Craig
  9. Partial Unemployment Insurance Benefits and the Transition Rate to Regular Work By Tomi Kyyrä
  10. Measuring Welfare and the Effects of Regulation in a Government-Created Market: The Case of Medicare Part D Plans By Claudio Lucarelli; Jeffrey Prince; Kosali Simon
  11. Human capital risk in life-cycle economies By Singh, Aarti

  1. By: John F. Cogan; R. Glenn Hubbard; Daniel P. Kessler
    Abstract: Subsidies for health insurance for chronically ill, high-cost individuals may increase coverage in the broader population by improving the functioning of insurance markets. In this paper, we assess an historical example of a policy intervention of this sort, the extension of Medicare to the disabled, on the private insurance coverage of non-disabled individuals. We use data on insurance coverage from the Panel Study of Income Dynamics from before and after the extension of Medicare to the disabled to estimate the effect of the program on private insurance coverage rates in the broader population. We find that the insurance coverage of individuals who had a health condition that limited their ability to work increased significantly in states with high versus low rates of disability. Our findings suggest that that subsidizing individuals with high expected health costs is an effective way to increase the private insurance coverage of other high-cost individuals.
    JEL: I1
    Date: 2008–09
  2. By: Lindbeck, Assar (Institute for International Economic Studies, Stockholm University); Persson, Mats (Institute for International Economic Studies, Stockholm University)
    Abstract: We develop a simple yet realistic model of income insurance, where the individual’s ability and willingness to work is treated as a continuous variable. In this framework, income insurance not only provides income smoothing, it also relieves the individual from particularly burdensome work. As a result, the individual adjusts his labor supply in a continuous fashion to the implicit tax wedge of the insurance system. Moral hazard, in the sense that an individual receives insurance benefits without actually being fully qualified, also becomes a matter of degree. Moreover, our continuous framework makes it easy to analyze both the role of administrative rejection of claims, and the role of social norms, for the utilization of insurance.
    Keywords: Moral hazard; disability insurance; work absence; administrative rejection; asymmetric information; social norms
    JEL: G22 H53 I38 J21
    Date: 2008–08–29
  3. By: Kengo Kato (Graduate School of Economics, University of Tokyo); Naoto Kunitomo (Faculty of Economics, University of Tokyo); Satoshi Masuda (Chuo Mitsui Trust Holdings, Inc.)
    Abstract: We summarize the recent developments on the statistical method of Lasso-Quantile Regression and we apply it to a Non-life Insurance problem. We discuss the asymptotic properties of the Quantile Regression estimator, the computational aspects related to the Linear Programming problem and the selection of Quantile regressors. We illustrate the practical aspects of measuring risk factors by using a Non-life insurance data.
    Date: 2008–08
  4. By: Hochrainer, S.; Mechler, R.; Pflug, G.; Lotsch, A.
    Abstract: This analysis explores the potential impact of climate change on the viability of the Malawi weather insurance program making use of scenarios of climate change-induced variations in rainfall patterns. The analysis is important from a methodological and policy perspective. By combining catastrophe insurance modeling with climate modeling, the methodology demonstrates the feasibility, albeit with large uncertainties, of estimating the effects of climate change on the near and long-term future of microinsurance schemes serving the poor. By providing a model-based estimate of the incremental role of climate change, along with the associated uncertainties, this methodology can quantitatively demonstrate the need for financial assistance to protect micro-insurance pools against climate-change induced insolvency. This isof major concern to donors, nongovernmental organizations, and others supporting these innovative systems; those actually at-risk; and insurers. A quantitative estimate of the additional burden that climate change imposes on weather insurance for poor regions is of interest to organizations funding adaptation.
    Keywords: Climate Change,Debt Markets,Hazard Risk Management,,Banks&Banking Reform
    Date: 2008–05–01
  5. By: Krueger, Alan B. (Princeton University); Mueller, Andreas (IIES, Stockholm University)
    Abstract: This paper provides new evidence on job search intensity of the unemployed in the U.S., modeling job search intensity as time allocated to job search activities. The main findings are: 1) the average unemployed worker in the U.S. devotes about 41 minutes to job search on weekdays, which is substantially more than his or her European counterpart; 2) workers who expect to be recalled by their previous employer search substantially less than the average unemployed worker; 3) across the 50 states and D.C., job search is inversely related to the generosity of unemployment benefits, with an elasticity between -1.6 and -2.2; 4) the predicted wage is a strong predictor of time devoted to job search, with an elasticity in excess of 2.5; 5) job search intensity for those eligible for Unemployment Insurance (UI) increases prior to benefit exhaustion; 6) time devoted to job search is fairly constant regardless of unemployment duration for those who are ineligible for UI. A nonparametric Monte Carlo technique suggests that the relationship between job search effort and the duration of unemployment for a cross-section of job seekers is only slightly biased by length-based sampling.
    Keywords: unemployment, unemployment insurance, job search, time use, unemployment benefits, inequality
    JEL: J64 J65
    Date: 2008–08
  6. By: Osgood, Daniel E.; Suarez, Pablo; Hansen, James; Carriquiry, Miguel; Mishra, Ashok
    Abstract: Climate variability poses a severe threat to subsistence farmers in southern Africa. Two different approaches have emerged in recent years to address these threats: the use of seasonal precipitation forecasts for risk reduction (for example, choosing seed varieties that can perform well for expected rainfall conditions), and the use of innovative financial instruments for risk sharing (for example, index-based weather insurance bundled to microcredit for agricultural inputs). So far these two approaches have remained entirely separated. This paper explores the integration of seasonal forecasts into an ongoing pilot insurance scheme for smallholder farmers in Malawi. The authors propose a model that adjusts the amount of high-yield agricultural inputs given to farmers to favorable or unfavorable rainfall conditions expected for the season. Simulation results - combining climatic, agricultural, and financial models - indicate that this approach substantially increases production in La Niña years (when droughts are very unlikely for the study area), and reduces losses in El Niño years (when insufficient rainfall often damages crops). Cumulative gross revenues are more than twice as large for the proposed scheme, given modeling assumptions. The resulting accumulation of wealth can reduce long-term vulnerability to drought for participating farmers. Conclusions highlight the potential of this approach for adaptation to climate variability and change in southern Africa.
    Keywords: Hazard Risk Management,Debt Markets,,Rural Poverty Reduction,Banks&Banking Reform
    Date: 2008–06–01
  7. By: Hou, Xiaohui; Chao, Shiyan
    Abstract: As part of the recent health reform effort, the government of Georgia launched a Medical Assistance Program in June 2006 to provide health insurance to its poor population. So far the program covers slightly over 50 percent of the poor and provides benefit coverage for outpatient and inpatient care. This paper estimates initial impact of the Medical Assistance Program and assesses whether the benefits have reached the poorest among those eligible, using utilization data from June 2006 to December 2006. Based on the analysis using a regression discontinuity design and a three-part model, the paper presents two main findings. First, the Medical Assistance Program has significantly increased utilization of acute surgeries/inpatient services by the poor. Second, the benefits have successfully reached the poorest among the poor. These two findings indicate that government efforts to improve the poor's access to and utilization of health services are yielding results. The paper emphasizes that the initial dramatic increase in surgeries must be interpreted with caution, given the possible misclassification or misreporting of acute surgeries in the data. The paper also stresses the need to continue monitoring implementation of the Medical Assistance Program and further improve program design, particularly the targeting mechanism, to achieve better efficiency, effectiveness and overall equity in access to health care services.
    Keywords: Health Monitoring&Evaluation,Health Systems Development&Reform,Health Economics&Finance,,Health Law
    Date: 2008–04–01
  8. By: Thorburn, Craig
    Abstract: In many markets, industry and policymakers agree that there may be too many insurers. In others, the consensus is that there could be benefit from more competition. But this broad consensus is often supported by evidence that is more qualitative, anecdotal, or judgmental despite being unanimous. What is less clear, however, is how far consolidation or liberalization will go, how fast, and when it will end. This paper presents some initial observations from a cross-country data set and proposes that individual country results can be interpreted against this data set to inform expectations regarding trends in competition, concentration and consolidation, to inform analysis of the sector, for individual firm strategic planning and wider market risk assessments. A"natural level"for measures is suggested as a starting hypothesis. Further consideration is then made of the role of absolute market size, stage of market development, and differentials between life and non life segments. Analysis of the natural level, adjusted for market conditions, can then be used to develop preliminary views on current and expected market dynamics, strategic planning, and to inform policy, regulatory and supervisory priorities.
    Keywords: Debt Markets,Markets and Market Access,Emerging Markets,Microfinance,Insurance&Risk Mitigation
    Date: 2008–03–01
  9. By: Tomi Kyyrä
    Abstract: In Finland, unemployed workers who are looking for a full-time job but take up a part-time or very short full-time job may qualify for partial unemployment benefits. In exchange for partial benefits, these applicants must continue their search of regular full-time work. We analyze the implications of the experiences of partial unemployment for subsequent transitions to regular employment. We apply the "timing of events" approach to distinguish between causal and selectivity effects associated with the receipt of partial benefits. Our findings suggest that partial unemployment associated with short full-time jobs facilitates transitions to regular employment. Also part-time working on partial benefits may help in finding a regular job afterwards.
    Keywords: Partial unemployment benefits, temporary work, duration analysis, treatment effect
    Date: 2008–03–19
  10. By: Claudio Lucarelli; Jeffrey Prince; Kosali Simon
    Abstract: Medicare's prescription drug benefit (Part D) has been its largest expansion of benefits since 1965. Since the implementation of Part D, many regulatory proposals have been advanced to improve this government-created market. Among the most debated are proposals to limit the number of options, in response to concerns that there are "too many" plans. In this paper we study the welfare impacts of limiting the number of Part D plans. To do this, we first provide evidence that consumers view Medicare Part D plans as differentiated products. In doing so, we determine how much Medicare beneficiaries value the plans' various features -- an important measurement not only for our analysis, but also because these features are heavily dictated by policy. Second, using our demand- and supply-side estimates, we conduct several policy experiments to understand the implications of reducing the number of plans. Specifically, we assess the effects on equilibrium premia and welfare from removing plans that cover "the gap," reducing the maximum number of plans each firm can offer per region, and, for validation purposes, the impact of a recent major merger. Our counterfactuals regarding removal of plans provide an important assessment of the losses to consumers (and producers) resulting from government limitations on choice. These costs must be weighed against the widely discussed expected gains from limiting options (due to expected reductions in consumer search costs) when considering new restrictions on the number of plans that can be offered. We find that the search costs should be at least two thirds of the average monthly premium in order to justify a regulation that allows only two plans per firm, and that this number would be substantially lower if the limitation in the number of plans is coupled with a decrease in product differentiation (e.g., by removing plans that cover "the gap").
    JEL: H42 H51 I11 I18 L13 L51 L88
    Date: 2008–09
  11. By: Singh, Aarti
    Abstract: I study the effect of market incompleteness on the aggregate economy in a model where agents face idiosyncratic, uninsurable human capital investment risk. The environment is a general equilibrium lifecycle model with a version of a Ben-Porath (1967) human capital accumulation technology, modified to incorporate risk. A CARA-normal specification keeps endogenous decisions independent of individual shock realizations. I study stationary equilibria of calibrated cases in which idiosyncratic uninsurable risk arises from specialization risk and career risk. Specialization risk is such that both mean and variance of the return from training are increasing in the endogenous decision to invest in human capital. In the case of career risk, however, only the mean return is increasing in the decision to invest in human capital. With career risk only, stationary equilibria resemble those studied by Aiyagari (1994), and one concludes that the impact of uninsurable idiosyncratic risk is relatively small. With a significant amount of specialization risk however, stationary equilibria are severely distorted relative to a complete markets benchmark. One aspect of this distortion is that human capital is only about 57 percent as large as its complete markets counterpart. This suggests that the two types of risk have very different and quantitatively significant general equilibrium implications. Keywords: Human capital risk, life-cycle, incomplete markets.
    JEL: E24 E21 E20
    Date: 2008–03

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