nep-ias New Economics Papers
on Insurance Economics
Issue of 2009‒07‒17
ten papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. The Impact of Medical and Nursing Home Expenses and Social Insurance Policies on Savings and Inequality By Kopecky, Karen A.; Koreshkova, Tatyana
  2. An Experimental Analysis of Group Size and Risk Sharing By Ananish Chaudhuri; Lata Gangadharan; Pushkar Maitra
  4. The Labor Supply Effects of Disability Insurance Work Disincentives: Evidence from the Automatic Conversion to Retirement Benefits at Full Retirement Age By Nicole Maestas; Na Yin
  5. Firm Compliance with Social Insurance Obligations where there is a Weak Surveillance and Enforcement Mechanism: Empirical Evidence from Shanghai By Pushkar Maitra; Ingrid Nielsen; Chris Nyland; Russell Smyth; Cherrie Zhu
  6. The Ability of Various Measures of Fatness to Predict Application for Disability Insurance By Richard V. Burkhauser; John Cawley; Maximilian D. Schmeiser
  7. Sensitivity analysis and density estimation for finite-time ruin probabilities By Stéphane Loisel; Nicolas Privault
  8. Curing the Dutch Disease: Lessons for United States Disability Policy By Richard V. Burkhauser; Mary C. Daly; Philip R. de Jong
  9. Does the Rise in the Full Retirement Age Encourage Disability Benefits Applications? Evidence from the Health and Retirement Study By Xiaoyan Li; Nicole Maestas
  10. How Much Do Respondents in the Health and Retirement Study Know About Their Tax-deferred Contribution Plans? A Crosscohort Comparison By Irena Dushi; Marjorie Honig

  1. By: Kopecky, Karen A.; Koreshkova, Tatyana
    Abstract: We consider a life-cycle model with idiosyncratic risk in labor earnings, out-of-pocket medical and nursing home expenses, and survival. Partial insurance is available through welfare, Medicaid, and social security. Calibrating the model to the U.S., we find that nursing home expenses play an important role in the savings of the wealthy. In our policy analysis, we find that elimination of out-of-pocket expenses through public health care would reduce the capital stock by 12 percent, Medicaid and old-age welfare programs crowd out 44 percent of savings and greatly increase wealth inequality, and social security effects are influenced by out-of-pocket health expenses.
    Keywords: social insurance; medical expenses; nursing home expenses; wealth inequality; savings
    JEL: I18 E21
    Date: 2009–06
  2. By: Ananish Chaudhuri; Lata Gangadharan; Pushkar Maitra
    Abstract: We study the relationship between group size and the extent of risk sharing in an insurance game played over a number of periods with random idiosyncratic and aggregate shocks to income in each period. Risk sharing is attained via agents that receive a high endowment in one period making unilateral transfers to agents that receive a low endowment in that period. The complete risk sharing allocation is for all agents to place their endowments in a common pool, which is then shared equally among members of the group in every period. Theoretically, the larger the group size, the smaller the per capita dispersion in consumption and greater is the potential value of insurance. Field evidence however suggests that smaller groups do better than larger groups as far as risk sharing is concerned. Results from our experiments show that the extent of mutual insurance is significantly higher in smaller groups, though contributions to the pool are never close to what complete risk sharing requires.
    Keywords: Reciprocity, Risk Sharing, Group Size, Experiments.
    JEL: O12 C92 D81
    Date: 2009–06
  3. By: Asadul Islam; Pushkar Maitra
    Abstract: This paper estimates, using a large panel data set from rural Bangladesh, the effects of health shocks on household consumption and how access to microcredit affects households' response to such shocks. Our results suggest that even though in general consumption remains stable in many cases when households are exposed to health shocks, households that have access to microcredit appear to cope (slightly) better. The most important instrument used by households appear be sales of productive assets (livestock) and there is a significant mitigating effect of microcredit: households that have access to microcredit do not need to sell livestock to the extent households that do not have access to microcredit need to, in order to insure consumption against health shocks. The results suggest that microcredit organizations and microcredit per se have an insurance role to play, an aspect that has not been analyzed previously.
    Keywords: Health Shocks, Microcredit, Consumption Insurance, Bangladesh.
    JEL: O12 I10 C23
    Date: 2009–06
  4. By: Nicole Maestas (RAND); Na Yin (Baruch College-CUNY)
    Abstract: The Social Security Disability Insurance (DI) program imposes strong work restrictions on beneficiaries; however, the causal effect of the work disincentives on labor supply has been difficult to estimate. We take a new look at this question by exploiting the fact that DI benefits are payable only until full retirement age (FRA), at which point they are converted to retired worker benefits, and the program’s implicit high marginal tax rate on earnings is abruptly relaxed. Using a quasiexperimental research design, we examine whether the DI work disincentives are binding by comparing changes in labor force participation rates before and after the FRA for DI beneficiaries and non-beneficiaries. We find a relative increase in labor force participation at FRA for DI beneficiaries of 10.4 percentage points, and argue that this is likely a lower bound estimate on the labor supply disincentive effects of the DI program.
    Date: 2008–09
  5. By: Pushkar Maitra; Ingrid Nielsen; Chris Nyland; Russell Smyth; Cherrie Zhu
    Abstract: This paper draws on a unique data set collected in audits in 2001 and 2002 by the Bureau of Labour and Social Security in Shanghai to examine why firms in Shanghai comply or over-comply with social insurance obligations in a regulatory environment where the expected punishment for non-compliance is low. Drawing on Harrington (1988), we test two hypotheses. The first hypothesis is that based on the first audit, the BOLSS will segment firms into low (non-aggressive) and high (aggressive) categories and those in the high category will be more likely to be re-audited. The second hypothesis is that if the identified non-complier is re-audited, it will be more likely to comply with its social insurance obligations in order to be returned from the high (aggressive) category into the low (non aggressive) category. Our first main finding is that firms found to be in non-compliance in the first audit in 2001 were moved into a separate violation category and the probability of being reaudited in 2002 was significantly higher if the firm was in that category. Our second main result is that across the board, firms which were reaudited continued to underpay in 2002 but the extent of underpayment was significantly reduced.
    Keywords: social security, enforcement, multi-period game
    JEL: H83 K20 L51
    Date: 2009–05
  6. By: Richard V. Burkhauser (Cornell University and NBER); John Cawley (Cornell University and NBER); Maximilian D. Schmeiser (University of Wisconsin-Madison)
    Abstract: This paper compares a variety of measures of fatness (e.g. BMI, waist circumference, waist-tohip ratio, percent body fat) in terms of their ability to predict application for Social Security Disability Insurance (DI). This is possible through a recent linkage of the National Health and Nutrition Examination Survey (NHANES) III to Social Security Administration (SSA) administrative records. Our results indicate that the measure of fatness that best predicts application for DI varies by race and gender. For white men, BMI consistently predicts future application for DI. For white women, almost all are consistently predictive. For black men, none predict application. For black women, waist circumference and waist-to-hip ratio are the only significant predictors of DI application. This variation across race and gender suggests that the inclusion of alternative measures of fatness in social science datasets should be considered, and that researchers examining the impact of fatness on social science outcomes should examine the robustness of their findings to alternative measures of fatness.
    Date: 2008–09
  7. By: Stéphane Loisel (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429); Nicolas Privault (Department of Mathematics - City University of Hong Kong)
    Abstract: The goal of this paper is to obtain probabilistic representation formulas that are suitable for the numerical computation of the (possibly non-continuous) density functions of infima of reserve processes commonly used in insurance. In particular we show, using Monte Carlo simulations, that these representation formulas perform better than standard finite difference methods. Our approach differs from standard Malliavin probabilistic representation techniques which generally require more smoothness on random variables, entailing the continuity of their density functions.
    Keywords: Ruin probability; Malliavin calculus; insurance; integration by parts
    Date: 2009
  8. By: Richard V. Burkhauser (Cornell University); Mary C. Daly (Federal Reserve Bank of San Francisco); Philip R. de Jong (APE, Inc.)
    Abstract: In the 1990s, the United States reformed welfare programs targeted on single mothers and dramatically reduced their benefit receipt while increasing their employment and economic wellbeing. Despite increasing calls to do the same for working age people with disabilities in the U.S., disability cash transfer program rolls continue to grow as their employment rates fall and their economic well-being stagnates. In contrast to the failure to reform United States disability policy, the Netherlands, once considered to have the most out of control disability program among OECD nations, initiated reforms in 2002 that have dramatically reduced their disability cash transfer rolls, while maintaining a strong but less generous social minimum safety net for all those who do not work. Here we review disability program growth in the United States and the Netherlands, link it to changes in their disability policies and show that while difficult to achieve, fundamental disability reform is possible. We argue that shifts in SSI policies that focus on better integrating working age men and women with disabilities into the work force along the lines of those implemented for single mothers in the 1990s, together with SSDI program changes that better integrate private and public disability insurance programs along the lines of the reforms in the Netherlands, offer the best hope of improving their employment rates and economic well-being as well as reducing SSDI/SSI program growth.
    Date: 2008–09
  9. By: Xiaoyan Li (RAND); Nicole Maestas (RAND)
    Abstract: As the Social Security full retirement age rises, the relative generosity of Social Security retirement benefits compared to disability benefits is declining, raising the incentive for insured people to apply for disability benefits. After controlling for other differences in observable characteristics, such as life-time earnings, we find that an average four month increase in the FRA slightly increases the two-year DI application rate by 0.04-0.30 percentage points. The effect is greater among those with a work limiting health problem (0.22-0.89 percentage points).
    Date: 2008–09
  10. By: Irena Dushi (Social Security Administration); Marjorie Honig (Hunter College and CUNY)
    Abstract: We use information from Social Security earnings records to examine the accuracy of employee reports of annual contributions to tax-deferred pension plans. As employer defined benefit pensions are replaced by voluntary contribution plans, employee understanding of the link between annual contribution decisions and post-retirement wealth is becoming increasingly important. We compare the accuracy of employee reports of annual contributions in a sample of respondents in the original HRS cohort and in a sample of two younger cohorts, the War Babies and Early Baby Boomers. Tax-deferred plans are more common among the younger cohorts and we expected that they would be better informed about their annual contributions. We find that, among respondents for whom SSA administrative records are available, those in the younger cohorts were more likely to report accurately that they were included in a tax-deferred plan. Contrary to our expectation, identical proportions (70 percent) of respondents in both the older and the younger cohorts accurately reported whether they made a contribution during the interview year. Furthermore, we find no significant difference between the older and younger cohorts in the degree of reporting accuracy of contribution amounts, with approximately one-half of respondents in each cohort reporting contributions within plus/minus 25 percent of the true value. Both cohorts’ self-reported contributions are systematically larger than the true values. Finally, both self-reported and W-2 contributions are significantly larger among respondents in the WB/EBB cohort.
    Date: 2008–12

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