nep-ias New Economics Papers
on Insurance Economics
Issue of 2009‒02‒28
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. A Dynamic Analysis of the Demand for Health Insurance and Health Care By Bolhaar, Jonneke; Lindeboom, Maarten; van der Klaauw, Bas
  2. Dependency insurance in Belgium By Güngör Karakaya
  3. Long-term care: Regional disparities in Belgium By Güngör Karakaya
  4. Choice Inconsistencies Among the Elderly: Evidence from Plan Choice in the Medicare Part D Program By Jason T. Abaluck; Jonathan Gruber
  5. Optimal capital allocation principles By Dhaene, Jan; Tsanakas, Andreas; Emiliano, Valdez; Steven, Vanduffel
  6. Consumption Smoothing without Secondary Markets for Small Durable Goods By Michio Suzuki
  7. On the Relationship between Market Power and Bank Risk Taking By Kaniska Dam; Marc Escrihuela-Villar; Santiago Sanchez-Pages
  8. Are Boys and Girls Affected Differently When the Household Head Leaves for Good? Evidence from School and Work Choices in Colombia By Fitzsimons, Emla; Mesnard, Alice

  1. By: Bolhaar, Jonneke; Lindeboom, Maarten; van der Klaauw, Bas
    Abstract: We investigate the presence of moral hazard and advantageous or adverse selection in a market for supplementary health insurance. For this we specify and estimate dynamic models for health insurance decisions and health care utilization. Estimates of the health care utilization models indicate that moral hazard is not important. Furthermore, we find strong evidence for advantageous selection, largely driven by heterogeneity in education, income and health preferences. Finally, we show that ignoring dynamics and unobserved fixed effects changes the results dramatically.
    Keywords: advantageous selection; health care utilization; moral hazard; panel data; supplementary private health insurance
    JEL: C33 D82 G22 I11
    Date: 2008–09
  2. By: Güngör Karakaya (Université Libre de Bruxelles, Dulbéa)
    Abstract: In this paper we analyze the system of long-term care insurance currently in place in Belgium or rather in Flanders (the Dutch-speaking part of the country), since the French and Germanspeaking parts have not yet such insurance. More precisely, we review the scope, benefits,financing and functioning of the Flemish dependency insurance (called the Vlaamse Zorgverzekering) and present some statistics regarding the number of persons affiliated to the Vlaamse Zorgverzekering, the number and percentage of approved applications, the grants awarded by the Government of Flanders and the revenue and expenditure/costs relating to the Flemish dependency insurance system in order to comprehend the key factors explaining some evolution related to the dependency in Belgium. Analyses show that the adjustments and successive changes that the dependency insurance has undergone are explained by its success in terms of claims for benefits. We also find that the problem of equity and adverse selection favorable to the inhabitants of Brussels at the expense of the Flemish people is reduced owing to the different treatments for the two regions.
    Keywords: Long-term care, Old age assistance, Subsidies, Revenue and Expenditures for health
    JEL: I12 I18 H71 H75
    Date: 2009–02
  3. By: Güngör Karakaya (Université Libre de Bruxelles, Dulbéa)
    Abstract: In this paper we analyze the problem of population ageing in terms of non-medical care needs of persons who are dependent or have lost their autonomy, in order to provide the various public and private administrations active in these fields with some food for thought. The anticipated increase in dependency poses significant challenges in terms of needs evolution and financing. Using administrative data on the Belgian population to build indicators on the prevalence of dependency at home in the three regions in 2001, we find that the likelihood of a sustained increase in the Flemish prevalence rates ultimately amplifies the magnitude of the financing problems that the Flemish dependency insurance scheme has experienced since its first years of operation. Results also show that the smaller increases or the decreases (according to the scenario selected) expected in Wallonia and Brussels are likely to mitigate concern about the sustainability of any long-term care insurance in Wallonia and therefore to facilitate its eventual introduction.
    Keywords: Long-term care, Old age assistance, Demographic changes, Regional inequalities, Projection
    JEL: I12 I18 J11 J14
    Date: 2009–02
  4. By: Jason T. Abaluck; Jonathan Gruber
    Abstract: The Medicare Part D Prescription Drug Plan represents the most significant privatization of the delivery of a public insurance benefit in recent history, with dozens of private insurers offering a wide range of products with varying prices and product features; the typical elder had a choice of roughly 40 stand-alone drug plans. In this paper we evaluate the choices of elders across this wide array of Part D options using a unique data set of prescription drug claims matched to information on the characteristics of choice sets. We first document that the vast majority of elders are choosing plans that are not on the “efficient portfolio†of plan choice in the sense that an alternative plan offers better risk protection at a lower cost. We then estimate several discrete choice models to document three dimensions along which elders are making choices which are inconsistent with optimization under full information: elders place much more weight on plan premiums than they do on expected out of pocket costs; they place almost no value on variance reducing aspects of plans; and they value plan financial characteristics beyond any impacts on their own financial expenses or risk.These findings are robust to a variety of specifications and econometric approaches. We develop an "adjusted" revealed preference approach that combines data from consumer choices with ex ante restrictions on preferences, and find that in a partial equilibrium setting, restricting the choice set to the three lowest average cost options would have likely raised welfare for elders under the program.
    JEL: I11 I18
    Date: 2009–02
  5. By: Dhaene, Jan; Tsanakas, Andreas; Emiliano, Valdez; Steven, Vanduffel
    Abstract: This paper develops a unifying framework for allocating the aggregate capital of a financial firm to its business units. The approach relies on an optimisation argument, requiring that the weighted sum of measures for the deviations of the business unit’s losses from their respective allocated capitals be minimised. This enables the association of alternative allocation rules to specific decision criteria and thus provides the risk manager with flexibility to meet specific target objectives. The underlying general framework reproduces many capital allocation methods that have appeared in the literature and allows for several possible extensions. An application to an insurance market with policyholder protection is additionally provided as an illustration.
    Keywords: Capital allocation; risk measure; comonotonicity; Euler allocation; default option; Lloyd’s of London.
    JEL: G00 G20
    Date: 2009–01–23
  6. By: Michio Suzuki (Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: The purpose of this paper is to study whether trade frictions in durable goods markets help account for the patterns of household consumption expenditures observed in the Consumer Expenditure Survey (CEX), namely that the response of durable goods expenditures to income shocks is 78 percent larger than that of nondurable goods and the variance of the idiosyncratic part of log durable goods expenditures is four times as high as that of log nondurable goods expenditures. To do so, I develop a model with a continuum of households that purchase durable as well as nondurable goods. The key assumption is that durable goods cannot be rented or sold after purchase. By comparing stationary distributions of the model with and without trade frictions, I find that trade frictions are crucial in accounting for the expenditure patterns observed in the data.
    Keywords: Durable Goods, Irreversibility, Consumption Insurance
    JEL: E21
    Date: 2009–02
  7. By: Kaniska Dam; Marc Escrihuela-Villar; Santiago Sanchez-Pages
    Abstract: We analyse risk-taking behaviour of banks in the context of spatial competition. Banks mobilise unsecured deposits by offering deposit rates, which they invest either in a prudent or a gambling asset. Limited liability along with high return of a successful gamble induce moral hazard at the bank level. We show that when the market power is low, banks invest in the gambling asset. On the other hand, for sufficiently high levels of market power, all banks choose the prudent asset to invest in. We further show that a merger of two neighboring banks increases the likelihood of prudent behaviour. Finally, introduction of a deposit insurance scheme exacerbates banks’ moral hazard problem.
    JEL: D43 G28 G34
    Date: 2009–02
  8. By: Fitzsimons, Emla; Mesnard, Alice
    Abstract: This paper investigates how the permanent departure of the head from the household, mainly due to death or divorce, affects children’s school enrolment and work participation in rural Colombia. In our empirical specification we use household-level fixed effects to deal with the fact that households that experience the departure of the head are likely to differ in unobserved ways from those that do not, and we also address the issue of non-random attrition from the panel. We find remarkably different effects for boys and girls. For boys, the adverse event reduces school participation and increases participation in paid work, whereas for girls we find evidence of the adverse event having a beneficial impact on schooling. To explain these differences, we provide evidence for boys consistent with the head’s departure having an important effect through the income reduction associated with it, whereas for girls, changes in the household decision-maker appear to play an important role.
    Keywords: Adverse even; Bargaining; Child labour; Credit and insurance market failures; Income loss; Schooling
    JEL: I20 J12 J22 O16
    Date: 2008–11

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