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on Insurance Economics |
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Issue of 2009‒01‒03
sixteen papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Hendrik Schmitz |
| Abstract: | Deductibles in health insurance are often regarded as a means to contain health care costs when individuals exhibit moral hazard. However, in the absence of moral hazard, voluntarily chosen deductibles may instead lead to self-selection into different insurance contracts.We use a set of new variables in the German Socioeconomic Panel for the years 2002, 2004, and 2006 that measure individual health more accurately and include risk-attitudes towards health in order to determine the price elasticity of demand for health care.A latent class approach that takes into account the panel structure of the data reveals that the effect of deductibles on the number of doctor visits is negligible. Private add-on insurance increases the number of doctor visits.However, altogether the effects of the insurance state on the demand for doctor visits are small in magnitude. |
| Keywords: | Health insurance, deductibles, add-on insurance, count data, latent class panel model |
| JEL: | I11 I18 G22 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0076&r=ias |
| By: | Dhaval M. Dave; Sandra Decker; Robert Kaestner; Kosali I. Simon |
| Abstract: | This paper analyzes the effect of Medicaid eligibility expansions on the health insurance coverage of women giving birth and on the use of prenatal care and infant health, controlling for year and state effects and state-specific trends that may be correlated with expansions in Medicaid eligibility. We combine estimates from the two sets of analyses to construct estimates of the effect of health insurance on use of prenatal care and infant health. We find that the eligibility expansions reduced the proportion of pregnant women who were uninsured by approximately 10 percent, although this decrease in uninsured came with the expense of a substantial reduction in private insurance coverage. Changes in Medicaid eligibility were associated with very small and statistically insignificant changes in prenatal care use, birth weight, and incidence of low-birth weight. |
| JEL: | I11 I12 I18 I28 I38 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14591&r=ias |
| By: | Cory G. Walters; C. Richard Shumway; Hayley H. Chouinard; Philip R. Wandschneider (School of Economic Sciences, Washington State University) |
| Abstract: | Opportunistic behavior in crop insurance can arise due to asymmetric information between producers and the Federal Crop Insurance Corporation. Producers who insure fields using transitional yields based on county average yields or who select options such as buy-up coverage or revenue insurance may increase their return from crop insurance. Using field-level crop insurance contract data for several crops in five growing regions, we find evidence that producers can profit from using buy-up coverage, revenue insurance, and transitional yields and that the level of producer opportunism is crop but not necessarily land-quality specific and is greater due to premium subsidization. |
| Keywords: | opportunistic behavior, crop insurance, buy-up, revenue, transitional yields |
| JEL: | Q18 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:wsu:wpaper:shumway-7&r=ias |
| By: | Thomas Crossley (University of Cambridge); Mario Jametti (University of Lugano) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:lug:wpaper:0809&r=ias |
| By: | Thomas Crossley; Mario Jametti |
| 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: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:qseprr:428&r=ias |
| By: | Pallage, Stéphane (University of Québec at Montréal); Scruggs, Lyle (University of Connecticut); Zimmermann, Christian (University of Connecticut) |
| Abstract: | In this paper, we develop a methodology to summarize the various policy parameters of an unemployment insurance scheme into a single generosity parameter. Unemployment insurance policies are multdimensional objects. They are typically defined by waiting periods, eligibility duration, benefit levels and asset tests when eligible, which makes intertemporal or international comparisons difficult. To make things worse, labor market conditions, such as the likelihood and duration of unemployment matter when assessing the generosity of different policies. We build a first model with such complex characteristics. Our model features heterogeneous agents that are liquidity constrained but can self-insure. We then build a second model that is similar, except that the unemployment insurance is simpler: it is deprived of waiting periods and agents are eligible forever with constant benefits. We then determine which level of benefits in this second model makes agents indifferent between both unemployment insurance policies. We apply this strategy to the unemployment insurance program of the United Kingdom and study how its generosity evolved over time. |
| Keywords: | unemployment insurance, labor market policy evaluation |
| JEL: | E24 J65 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3868&r=ias |
| By: | Pallage, Stéphane (University of Québec at Montréal); Scruggs, Lyle (University of Connecticut); Zimmermann, Christian (University of Connecticut) |
| Abstract: | The goal of this paper is to establish if unemployment insurance policies are more generous in Europe than in the United States, and by how much. We take the examples of France and one particular American state, Ohio, and use the methodology of Pallage, Scruggs and Zimmermann (2008) to find a unique parameter value for each region that fully characterizes the generosity of the system. These two values can then be used in structural models that compare the regions, for example to explain the differences in unemployment rates. |
| Keywords: | unemployment insurance, labor market policy evaluation |
| JEL: | E24 J65 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3869&r=ias |
| By: | Pablo Alonso González (Departamento de Estadística, Estructura y O.E.I. Universidad de Alcalá.); Irene Albarrán Lozano (Departamento de Estadística, Universidad Carlos III de Madrid.) |
| Abstract: | The passing of Act 39/2006, of 14th December, on the Promotion of Personal Autonomy and Care for Dependent Persons (known as the Dependent Care Law) has created the fourth pillar of Welfare State in Spain. In order to achieve its efficient implementation, we need to know who and how many individuals should be attended and how much money is needed for the attention. However, the answers to these two questions given until now suggest that a lot of work is still to be done in order to reach the objectives proposed by the Law. |
| Keywords: | Long term care insurance, dependence, costs, public funds. |
| JEL: | G22 J11 H68 H72 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:alc:alcamo:0806&r=ias |
| By: | Jean Abraham (Division of Health Policy and Management, University of Minnesota); Stéphanie Lluis (Department of Economics, University of Waterloo) |
| Abstract: | In this paper, we revisited the question of the existence of a tradeoff between wages and health insurance by extending previous work in the following way: 1) we exploit richer information on health insurance in terms of whether the worker holds health insurance or whether it is offered at the firm but he/she does not hold it, 2) we analyze possible combinations of health insurance with other fringe benefits (retirement, sick leave and paid vacation), 3) we include information on workers health (self-reported) as a determinants of workers wage and mobility decision, and 4) we use an econometric framework and GMM estimations which allow us to treat the issues of endogenous choice of benefits and mobility into benefits sectors encountered in the literature and estimate the extent of worker selection into jobs with/without benefits based on unobserved individual-specific traits, skills and health status. |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:wat:wpaper:08012&r=ias |
| By: | Mathieu Gatumel (Axa - AXA, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | For many assets and liabilities there exist deep and liquid markets so that the market value are reasily observed. However, for non-hedgeable risks, the market value of liabilities must be estimated. The Draft Solvency II Directive suggests in article 75 that the valuation of technical provisions (for non hedgeable risks) shall be the sum of a best estimate and a market value margin measuring the cost of risk. The market value margin is calculated as the present value of the cost of holding the solvency capital requirement for non-hedgeable risks during the whole run-off period of the in-force portfolio. One of the majour input of the market value margin is the cost-of-capital rate which corresponds to the risk premium applied on each unit of risk. According to European Commission (2007), European insurance and Reinsurance Federation (2008), and Chief Risk Officer Forum (2008), a single cost-of-capital rate shall be used by all insurance undertakings and for all lines of business. This paper aims at analyzing the cost-of-capital rate given by European Insurance and Reinsurance Federation (2008), and Chief Risk Officer Forum (2008). In particular, we highlight that it is very difficult to assess a cost-of- capital rate by using either the frictional cost approach or the full industry information beta methodology. Nevertheless, we highlight also that it seems to be irrelevant to use only one risk premium or all the risks and all the companies. We show that risk is not characterized by a fixed prices. In fact, the price of risk depends on the basket of risks at which it belongs, the risk level considered and the time period. |
| Keywords: | Market value margin, cost-of-capital rate, diversification effect, risk level. |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00348881_v1&r=ias |
| By: | Kijong Kim |
| Abstract: | Following an analysis of the forces behind the "global capital flows paradox" observed in the era of advancing financial globalization, this paper sets out to investigate the opportunity costs of self-insurance through precautionary reserve holdings. We reject the idea of reserves as low-cost protection against the vagaries of global finance. We also deny that arrangements giving rise to their rapid accumulation might be sustainable in the first place. Alternative policy options open to developing countries are explored, designed to limit both the risks of financial globalization and the costs of insurance-type responses. We propose comprehensive capital account management as an alternative to full capital account liberalization. The aims of a permanent regulatory regime of capital controls, with respect to both the aggregate size and the composition of capital flows, are twofold: first, to maintain sufficient macro policy space; second, to assure a good micro fit of external expertise incorporated in foreign direct investment as part of a country’s development strategy. |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_553&r=ias |
| By: | Alejandro Balbas |
| Abstract: | General risk functions are becoming very important in finance and insurance. Many risk functions are interpreted as initial capital requirements that a manager must add and invest in a risk-free security in order to protect his clients wealth. Nevertheless, until now it has not been proved that an alternative investment will be outperformed by the riskless asset. This paper deals with a complete arbitrage free market and a general expectation bounded risk measure and analyzes whether the investment in the riskless asset of the capital requirements is optimal. It is shown that it is not optimal in many important cases. For instance, if the risk measure is the CVaR and we consider the assumptions of the CAPM or the Black and Scholes model. Furthermore, the Black and Scholes model the explicit expression of the optimal strategy is provided, and it is composed of several put options. If the confidence level of the CVaR is close to 100% then the optimal strategy becomes a classical portfolio insurance strategy. This may be a surprising and important finding for both researchers and practitioners. In particular, managers can discover how to reduce the level of initial capital requirements by trading options. |
| Keywords: | Risk measure, Capital requirement, Optimal strategy, Portfolio insurance |
| JEL: | G11 G13 G22 G23 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wbrepe:wb087114&r=ias |
| By: | Lovell, Michael C. |
| Abstract: | This paper examines five problems with the inflation indexing procedures used by the Social Security Administration of the United States in taking inflation into account when calculating Old Age and Survivors Insurance (OASI) Benefits. Because of Problem #1, the commingling of unindexed with indexed earnings, a retiree born in 1930 who continued in a high earning career until age 75 receives an annual benefit more than $1,800 larger than would have been generated with full indexing. As a result of Problems #2 and #4 your OASI check will be larger if wage inflation happens to be extra high in your 60th year or if price inflation is exceptionally low in your 61st year. Because of the indexing problems, the percentage increase in your inflation (CPI-W) adjusted benefit if you elect to postpone retirement and the start of OASI benefits will depend in part on the pace of inflation. While inflation indexing problems do not attract much attention in normal times, they can contribute to serious short-run financial instability for the OASI trust fund in periods of substantial inflation or deflation. |
| Keywords: | Social Security, inflation, indexing |
| JEL: | H55 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:7410&r=ias |
| By: | Bin Srinidhi; Jia Yan; Giri Kumar Tayi (School of Economic Sciences, Washington State University) |
| Abstract: | In this paper, we adopt an organizational perspective to the management of information security and analyze in a multi-period context how an organization should allocate its internal cash flows and available external funds to revenuegenerating (productive) and security assuring (protective) processes in the presence of security breach, borrowing and financial distress costs. We show analytically and illustrate numerically that the capital stock accumulation is lower and allocations to security are higher in the initial periods compared to the benchmark (no security breach) case, while in the long run, the steady state allocations do not differ. Further, we show that external insurance can be beneficial to both the firm and the provider and examine the cost parameters that affect the feasibility range. The results highlight the importance of resource allocation and insurance at the organizational level in addressing security breach problems and enable managers to seek and use relevant information effectively. |
| Keywords: | Security Breach Costs; Financial Distress; Insurance; Resource Allocation. |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:wsu:wpaper:yan-1&r=ias |
| By: | Clifford Winston; Jia Yan (School of Economic Sciences, Washington State University) |
| Abstract: | U.S. highways are experiencing a “perfect storm:” traffic congestion and delays are imposing ever greater costs on motorists and shippers; poorly maintained roads and bridges continue to damage vehicles and pose threats to travelers’ safety; and for the first time since the Highway Trust Fund was created in 1956, the portion that finances federal highway expenditures is running a deficit. |
| Keywords: | Security Breach Costs; Financial Distress; Insurance; Resource Allocation. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:wsu:wpaper:yan-2&r=ias |
| By: | Ana Espinola-Arredondo; Sunita Mondal (School of Economic Sciences, Washington State University) |
| Abstract: | This paper analyzes the e¤ect of federal and state maternity leave policies on female employ- ment. We analyze if the enactment of the federal Family Medical Leave Act (FMLA) di¤erently a¤ected states which previously implemented maternity leave laws at the state level than those states which did not. Additionally, we study whether FMLA has provoked an increase in the female employment and labor force participation in those states which expanded its bene?ts and relaxed the eligibility criteria than in those which did not expand them. Finally, we analyze the Paid Family Leave program in California, comparing how the change in female employment dif- fers from those states which have FMLA alone and those which have complemented the bene?ts of FMLA. Using March CPS data available from the Integrated Public Use Micro data Series (IPUMS), our results suggest that the change in female employment is positive and signi?cant when states complement the bene?ts and eligibility criteria of FMLA. |
| Keywords: | Family Medical Leave Act, Temporary Disability Insurance, Female Employment. |
| JEL: | J48 K31 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:wsu:wpaper:espinola-3&r=ias |