nep-ias New Economics Papers
on Insurance Economics
Issue of 2008‒12‒14
twelve papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. On insurance contract design for low probability events By Eric Langlais
  2. Modeling the Crop Insurance Industry Portfolio Gains and Losses (PowerPoint) By Vergara, Oscar; Zuba, Gerhard; Seaquist, Jack
  3. How Much Do Older Workers Value Employee Health Insurance? By Leora Friedberg; Wei Sun; Anthony Webb
  4. Pension Benefit Insurance and Pension Plan Portfolio Choice By Thomas Crossley; Mario Jametti
  5. Are Health Insurance Markets Competitive? By Leemore Dafny
  6. Catastrophic health expenditure and household well-being By Ramses H. Abul Naga; Karine Lamiraud
  7. Social Wealth and Optimal Care By Giuseppe Dari-Mattiacci; Eric Langlais
  8. Work incentives? Ex-post effects of unemployment insurance sanctions : evidence from West Germany By Hofmann, Barbara
  9. Mandates and the Affordability of Health Care By Sherry A. Glied
  10. Estimating Marginal Returns to Medical Care: Evidence from At-Risk Newborns By Douglas Almond; Joseph J. Doyle, Jr.; Amanda E. Kowalski; Heidi Williams
  11. Value of statistical life and cause of accident: A choice experiment By Carlsson, Fredrik; Daruvala, Dinky; Jaldell, Henrik
  12. Risk Aversion and the Value of Risk to Life By Bommier, Antoine; Villeneuve, Bertrand

  1. By: Eric Langlais
    Abstract: This paper extends the analysis of insurance contracts design to the case of "low probability events", when there is a probability mass on the event "no accident-zero loss". The optimality of the deductible clause is discussed both at the theoretical and empirical levels.
    Keywords: Optimal insurance design, low probability events, insurance coverage for catastrophic risks
    JEL: D80 D81
    Date: 2008
  2. By: Vergara, Oscar; Zuba, Gerhard; Seaquist, Jack
    Abstract: Powerpoint slide show presenting information about AIR (the first catastrophic modeling company), weather-based yield models, agricultural portfolio loss model, and applications to crop insurance/reinsurance.
    Keywords: risk, crop insurance, reinsurance, modeling, agricultural loss, loss model, yield model, Risk and Uncertainty,
    Date: 2008–03
  3. By: Leora Friedberg; Wei Sun; Anthony Webb
    Abstract: This brief seeks to answer the question in the title by analyzing data from the Health and Retirement Study (HRS), a nationally representative survey of older Americans. New questions in the HRS enable researchers to compare the value that workers place on health insurance with their perceptions about the cost of coverage...
    Date: 2008–07
  4. By: Thomas Crossley (University of Cambridge, London); Mario Jametti (York University, Toronto Canada)
    Abstract: Pension benefit guarantee policies have been introduced in several countries to protect private pension plan members from the loss of income that would occur if a plan was underfunded when the sponsoring firm terminates a plan. Most of these public insurance schemes face financial difficulty and consequently policy reforms are being discussed or implemented. Economic theory suggests that such schemes will face moral hazard and adverse selection problems. In this note we test a specific theoretical prediction: insured plans will invest more heavily in risky assets. Our test exploits differences in insurance arrangements across Canadian jurisdictions. We find that insured plans invest about 5 percent more in equities than do similar plans without benefit guarantees.
    Keywords: Pensions, benefit guarantee, moral hazard
    JEL: G23 G11 C21
    Date: 2008–11
  5. By: Leemore Dafny
    Abstract: Although the vast majority of Americans have private health insurance, researchers focus almost exclusively on public provision. Data on the private insurance sector is extremely difficult to obtain because health insurance contracts are complex, renegotiated annually, and not subject to reporting requirements. This study makes use of a privately-gathered national database of insurance contracts agreed upon by a sample of large, multisite employers between 1998 and 2005. To gauge the competitiveness of the group health insurance industry, I investigate whether health insurers charge higher premiums, ceteris paribus, to more profitable firms. I find they do, and this result is not driven by cross-sectional differences across firms or plans: firms with positive profit shocks subsequently face higher premium growth, even for the same healthplans. Moreover, this relationship is strongest in geographic markets served by a small number of insurance carriers. Further analysis suggests profits act to increase employers' switching costs, and insurers exploit this inelasticity where they have sufficient bargaining power. Given the rapid industry consolidation during the study period, these findings suggest healthcare insurers possess and exercise market power in an increasing number of geographic markets.
    JEL: I1 L1
    Date: 2008–12
  6. By: Ramses H. Abul Naga; Karine Lamiraud
    Abstract: According to the catastrophic health expenditure methodology a house-hold is in catastrophe if its health out-of-pocket budget share exceeds a critical threshold. We develop a conceptual framework for addressing three questions in relation to this methodology, namely: 1. Can a budget share be informative about the sign of a change in welfare? 2. Is there a positive association between a household.s poverty shortfall and its health out-of-pocket budget share? 3. Does an increase in population coverage of a health insurance scheme always result in a reduction of the prevalence of catastrophic expenditures?
    Keywords: Catastrophic health expenditure, welfare change, poverty, performance of health insurance schemes
    JEL: I1 I3
    Date: 2008–11
  7. By: Giuseppe Dari-Mattiacci; Eric Langlais
    Abstract: Many industrial accidents result in losses (material damages or bodily injury) that cannot be perfectly compensated by a monetary payment, nor be perfectly insured. Moreover, often injurers control ex ante the magnitude rather than the probability of accidents. We study the characteristics of optimal levels of care and distribution of risk under these circumstances. 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 discuss in the light of fairness considerations (second best view).
    Keywords: accidents, risk, wealth, care, bodily injury
    Date: 2008
  8. By: Hofmann, Barbara (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "Unemployment insurance (UI) sanctions in the form of benefit reductions are intended to set disincentives for UI recipients to stay unemployed. Empirical evidence about the effects of UI sanctions in Germany is sparse. Using administrative data we investigate the effects of sanctions on the reemployment probability in West Germany for individuals who entered UI receipt between April 2000 and March 2001. By applying a matching approach that takes timing of events into account, we identify the ex post effect of UI sanctions. As a robustness check a difference-in-differences matching estimator is applied. The results indicate positive effects on the employment probability in regular employment for both women and men." (author's abstract, IAB-Doku) ((en))
    JEL: J64 J65 J68
    Date: 2008–12–10
  9. By: Sherry A. Glied
    Abstract: This paper examines the economic rationale of affordability exemptions in the context of a health insurance mandate. On its face, an affordability exemption makes little sense –it exempts people from purchasing a good that policymakers believe benefits them. I provide an economic definition of affordability and discuss how it is implemented in the contexts of food, housing, and health care. Affordability standards are frequently used in food and housing policy making, but both empirically and theoretically health care operates quite differently than do these other merit goods. These differences help explain why the use of affordability in health policymaking is so different from its use in these other contexts. I conclude with a discussion of the relationship between mandates and exemptions in other health care systems.
    JEL: I18 I32 I38
    Date: 2008–12
  10. By: Douglas Almond; Joseph J. Doyle, Jr.; Amanda E. Kowalski; Heidi Williams
    Abstract: We estimate marginal returns to medical care for at-risk newborns by comparing health outcomes and medical treatment provision on either side of common risk classifications, most notably the "very low birth weight" threshold at 1500 grams. First, using data on the census of US births in available years from 1983-2002, we find evidence that newborns with birth weights just below 1500 grams have lower one-year mortality rates than do newborns with birth weights just above this cutoff, even though mortality risk tends to decrease with birth weight. One-year mortality falls by approximately one percentage point as birth weight crosses 1500 grams from above, which is large relative to mean one-year mortality of 5.5% just above 1500 grams. Second, using hospital discharge records for births in five states in available years from 1991-2006, we find evidence that newborns with birth weights just below 1500 grams have discontinuously higher costs and frequencies of specific medical inputs. We estimate a $4,000 increase in hospital costs as birth weight approaches 1500 grams from above, relative to mean hospital costs of $40,000 just above 1500 grams. Taken together, these estimates suggest that the cost of saving a statistical life of a newborn with birth weight near 1500 grams is on the order of $550,000 in 2006 dollars.
    JEL: I12
    Date: 2008–12
  11. By: Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Daruvala, Dinky (Department of Economics, Karlstad University); Jaldell, Henrik (Department of Economics, Karlstad University)
    Abstract: The purpose of this study is to compare value of statistical life (VSL) estimates for traffic, drowning and fire accidents. Using a choice experiment in a mail survey of 5000 Swedish respondents we estimated the willingness to pay for risk reductions in the three accidents. In the experiment respondents were asked in a series of questions, whether they would choose risk reducing investments where type of accident, cost of the investment, the risk reduction acquired, and the baseline risk varied between questions. The VSLs for fire and drowning accidents were found to be about 1/3 lower than that for traffic accidents. Although respondents worry more about traffic accidents, this alone cannot explain the difference in VSL estimates. The difference between fire and drowning accidents was not found to be statistically significant.<p>
    Keywords: Stated preferences; statistical life; risk; traffic; fire; drowning; choice experiment
    JEL: D60 D81 R41
    Date: 2008–12–09
  12. By: Bommier, Antoine; Villeneuve, Bertrand
    Abstract: The standard literature on the value of life relies on Yaari’s (1965) model, which includes an implicit assumption of risk neutrality with respect to life duration. To overpass this limitation, we extend the theory to a simple variety of nonadditively separable preferences. The enlargement we propose is relevant for the evaluation of life-saving programs: current practice, we estimate, puts too little weight on mortality risk reduction of the young. Our correction exceeds in magnitude that introduced by the switch from the notion of number of lives saved to the notion of years of life saved.
    Keywords: Value of Statistical Life; Lifecycle Behavior; Cost-benefit Analysis
    JEL: D81 I18 J17 D91 D61
    Date: 2008–06–10

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