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on Insurance Economics |
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Issue of 2009‒11‒14
nine papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Jennifer Ifft |
| Abstract: | The government of India started offering widespread crop in insurance in 1985, with the Comprehensive Crop Insurance Scheme. The CCIS has been replaced by the National Agriculture Insurance Scheme. The NAIS is considered to be an improvement over the CCIS, but it has simply replaced one flawed scheme with another slightly less flawed one. Government crop insurance has proved to be a failure worldwide, but India seems to have ignored both its own failure and the failure of other countries. [CCS WP no. 0010]. |
| Keywords: | countries, infrastructure, financially sustainable, farmers, India, crop insurance, national agriculture, insurance, |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2268&r=ias |
| By: | Timothy W. Guinnane (Yale University, Economic Growth Center); Jochen Streb (University of Hohenheim) |
| Abstract: | This paper studies moral hazard in a sickness-insurance fund that provided the model for social-insurance schemes around the world. The German Knappschaften were formed in the medieval period to provide sickness, accident, and death benefits for miners. By the mid-nineteenth century, participation in the Knappschaft was compulsory for workers in mines and related occupations, and the range and generosity of benefits had expanded considerably. Each Knappschaft was locally controlled and self-funded, and their admirers saw in them the ability to use local knowledge and good incentives to deliver benefits at low cost. The Knappschaft underlies Bismarck’s sickness and accident insurance legislation (1883 and 1884), which in turn forms the basis of the German social-insurance system today and, indirectly, many social-insurance systems around the world. This paper focuses on a problem central to any insurance system, and one that plagued the Knappschaften as they grew larger in the later nineteenth century: the problem of moral hazard. Replacement pay for sick miners made it attractive, on the margin, for miners to invent or exaggerate conditions that made it impossible for them to work. Here we outline the moral hazard problem the Knappschaften faced as well as the internal mechanisms they devised to control it. We then use econometric models to demonstrate that those mechanisms were at best imperfect. |
| Keywords: | sickness insurance, moral hazard, Knappschaft, social insurance |
| JEL: | N33 N43 H55 H53 I18 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:978&r=ias |
| By: | Rege, Mari (University of Stavanger); Telle, Kjetil (Statistics Norway); Votruba, Mark (Case Western Reserve University) |
| Abstract: | . |
| Keywords: | disability; downsizing; layoffs; plant closing; social insurance; social interaction; welfare norms |
| JEL: | H55 I12 I38 J63 J65 |
| Date: | 2009–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:stavef:2009_030&r=ias |
| By: | Gilberto Turati (Università di Torino); Luigi Buzzacchi (Politecnico di Torino, DISPEA) |
| Abstract: | In this paper we consider the institutional arrangements needed in a decentralised framework to cope with the potential adverse welfare effects caused by localized negative shocks, that impact on the provision of public services and that can be limited by precautionary investments. We model the role of a public mutual fund to cover these “collective risks”. We first study the under-investment problem stemming from the moral hazard of Local administrations, when investments are defined at the local level and are not observable by the Central government that manages the mutual fund. We then examine the potential role of private insurers in solving the underinvestment problem. Our analysis shows that the public fund is almost always superior to the private insurance solution. |
| Keywords: | intergovernmental transfers, private insurer, collective risks |
| JEL: | H23 H77 G22 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2009/10/doc2009-21&r=ias |
| By: | Alfredo R. Paloyo |
| Abstract: | The reliability of general self-rated health status is examined using the reform of the public health insurance system of Germany in 2004 as a source of exogenous variation. Among others, the reform introduced a co-payment for ambulatory doctor visits and increased the co-payments for prescription drugs. This natural experiment allows identification of the causal impact of the program on self-assessed health and hence reveals the sensitivity of this subjective measure to a perturbation in the insurance system. Using data from the German Socio-Economic Panel, the results indicate that after the policy intervention, the respondents in the treated group perceived their own health status as better than their hypothetical untreated state even when there is no discernible impacton actual health.The reliability of general self-rated health status is examined using the reform of the public health insurance system of Germany in 2004 as a source of exogenous variation. Among others, the reform introduced a co-payment for ambulatory doctor visits and increased the co-payments for prescription drugs. This natural experiment allows identification of the causal impact of the program on self-assessed health and hence reveals the sensitivity of this subjective measure to a perturbation in the insurance system. Using data from the German Socio-Economic Panel, the results indicate that after the policy intervention, the respondents in the treated group perceived their own health status as better than their hypothetical untreated state even when there is no discernible impacton actual health. |
| Keywords: | natural experiment,cognitive dissonance,self-rated health status |
| JEL: | G22 H43 I18 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp225&r=ias |
| By: | Robalino, David (World Bank); Vodopivec, Milan (World Bank); Bodor, András (World Bank) |
| Abstract: | The paper describes and evaluates unemployment insurance savings accounts (UISAs) – a relatively new and not well-known way of providing unemployment benefits. The UISAs reduce work disincentives by allowing recipients to keep their own unused unemployment contributions, and offer the possibility to extend coverage to informal sector workers. In addition, if integrated with mandatory pension systems (and even social pensions), UISAs can be rapidly deployed and at a low cost, thus becoming a realistic tool to protect workers from the effects of the financial crisis. Even during normal times, the integration with the pension system – and social security in general – would give more flexibility to individuals in the management of short and long term savings (i.e., pension wealth) while avoiding unnecessary administrative costs. The paper discusses issues related to incentives, redistribution, and viability, and outlines a policy framework for design and implementation. It argues that the UISAs system is especially attractive for developing countries, where the "self-policing" nature of the system is particularly important given a much larger informal sector and weaker administrative capacity in comparison to developed countries. |
| Keywords: | unemployment insurance, unemployment insurance savings accounts, unemployment |
| JEL: | J65 J68 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4516&r=ias |
| By: | Timothy J. Goodspeed (Hunter College and Graduate Center of CUNY.); Andrew F. Haughwout (Federal Reserve Bank of New York) |
| Abstract: | Recent experience with disasters and terrorist attacks in the US indicates that state and local governments rely on the federal sector for support after disasters occur. But these same governments are responsible for investing in infrastructure designed to reduce vulnerability to natural and man-made hazards. This division of responsibilities – regional governments providing protection from disasters and federal government providing insurance against their occurrence – leads to the tensions that are at the heart of our analysis. We show that when the federal government is committed to full insurance against disasters, regions will have incentives to under-invest in costly protective measures. We derive the structure of the optimal second-best insurance system when regional governments choose investment levels non-cooperatively and the central government cannot verify regional investment choices. Normally (though not always) this will result in lower intergovernmental transfers and greater investment. However, the second-best transfer scheme suffers from a time-inconsistency problem. Ex-post, the central government will be driven towards equalizing rather than the second-best grants, which results in a type of soft budget constraint problem. Sub-national governments will anticipate this and reduce their investment in protective infrastructure even further. We discuss these results in light of recent disaster policy outcomes in the US. |
| Keywords: | insurance, disasters, federalism, transfers, grants |
| JEL: | H H7 R5 Q5 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2009/10/doc2009-25&r=ias |
| By: | Aase, Knut K. (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration) |
| Abstract: | In the canonical model of investments, the optimal fractions in the risky assets do not depend on the time horizon. This is against empirical evidence, and against the typical recommendations of portfolio managers. We demonstrate that if the intertemporal coefficient of relative risk aversion is allowed to depend on time, or the age of the investor, the investment horizon problem can be resolved. Accordingly, the only standard assumption in applied economics/finance that we relax in order to obtain our conclusion, is the state and time separability of the intertemporal felicity index in the investor’s utility function. We include life and pension insurance, and we also demonstrate that preferences aggregate. |
| Keywords: | The investment horizon problem; complete markets; life and pension insurance; dynamic programming; Kuhn-Tucker; directional derivatives; time consistency; aggregation |
| JEL: | G10 G22 |
| Date: | 2009–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2009_007&r=ias |
| By: | David A. Hennessy (Center for Agricultural and Rural Development (CARD)) |
| Abstract: | The modeling of price risk in the theory and practice of commodity risk management has been developed far beyond that of crop yield risk. This is in large part due to the use of plausible stochastic price processes. We use the Pólya urn to identify and develop a model of the crop yield expectation stochastic process over a growing season. The process allows a role for agronomic events, such as growing degree days. The model is internally consistent in adhering to the martingale property. The limiting distribution is the beta, commonly used in yield modeling. By applying binomial tree analysis, we show how to use the framework to study hedging decisions and crop valuation. |
| Keywords: | crop insurance, growing degree days, martingale, Pólya urn, stochastic process. |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:ias:cpaper:09-wp501&r=ias |