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on Insurance Economics |
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Issue of 2009‒12‒19
eighteen papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Alma Cohen; Peter Siegelman |
| Abstract: | This paper reviews and evaluates the empirical literature on adverse selection in insurance markets. We focus on empirical work that seeks to test the basic coverage–risk prediction of adverse selection theory—that is, that policyholders who purchase more insurance coverage tend to be riskier. The analysis of this body of work, we argue, indicates that whether such a correlation exists varies across insurance markets and pools of insurance policies. We discuss various reasons why a coverage–risk correlation may be found in some pools of insurance policies but not in others. We also review the work on the disentangling of adverse selection and moral hazard and on learning by policyholders and insurers. |
| JEL: | D82 G22 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15586&r=ias |
| By: | Juergen Jung (Department of Economics, Towson University); Chung Tran (School of Economics, University of New South Wales) |
| Abstract: | In this paper we develop a general equilibrium overlapping generations (OLG) model with health shocks to analyze the life-cycle pattern of insurance choice and health care spending. We use data from the Medical Expenditure Panel Survey (MEPS) and show that our model is able to match the life-cycle trends of insurance take up ratios and average medical expenditures in the U.S. We then demonstrate how this model can be used to conduct health care policy analysis by evaluating the macroeconomic effects of a counter factual health care reform using a system of universal health insurance vouchers. Our results suggest that health insurance vouchers are able to extend insurance coverage to the entire population but they also increase aggregate spending on health. More importantly, we find that the positive insurance effect (efficient risk pooling) dominates the negative incentive effect (tax distortions and moral hazard) which results in significant welfare gains for all generations when a payroll tax is used to finance the voucher program. In addition, our results suggest that the choice of tax financing instrument and accounting for general equilibrium price adjustments are critical in determining the performance of the voucher program. |
| Keywords: | Public health insurance; private health insurance; vouchers; dynamic stochastic general equilibrium model; endogenous health production |
| JEL: | H51 I18 I38 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2009-12&r=ias |
| By: | Dirk Krueger; Fabrizio Perri |
| Abstract: | Can public insurance through redistributive income taxation improve the allocation of risk in an economy in which private risk sharing is limited? The answer depends crucially on the fundamental friction that limits private risk sharing in the first place. If risk sharing is incomplete because some insurance markets are missing for model-exogenous reasons (as in Bewley, 1986 and Aiyagari, 1994) publicly provided risk sharing via a tax system generally improves on the allocation of risk. If instead private insurance markets exist but their use is limited by the absence of complete enforcement (as in Kehoe and Levine, 1993 and Kocherlakota, 1996) then the provision of public insurance can crowd out private insurance to such an extent that total consumption insurance is reduced. By reducing income risk the tax system increases the value of being excluded from private insurance markets and hence weakens the enforcement mechanism of these contracts. In this paper we theoretically characterize and numerically compute equilibria in an economy with limited enforcement and a continuum of agents facing realistic income risk and tax systems with various degrees of risk reduction (progressivity). We find that the crowding-out effect of public insurance on private insurance in the limited enforcement model can be quantitatively important, as is the positive insurance effect of taxation in the Bewley model. |
| JEL: | D52 E62 H31 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15582&r=ias |
| By: | Perry Singleton (Assistant Professor of Economics and Senior Research Associate, Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244-1020) |
| Abstract: | A substantial portion of the rise in Social Security Disability Insurance rolls since 1984 has been attributed to the Social Security Disability Benefits Reform Act. Using data from the National Health Insurance Survey, I examine whom the act effectively targeted. The analysis shows that new enrollees were demonstrably taller than previous enrollees, suggesting that the act expanded eligibility to individuals in better health and socioeconomic circumstances. However, the estimated effect of increased SSDI eligibility on employment is low, suggesting that the act targeted males who would have otherwise been unemployed. |
| Keywords: | disability insurance, labor supply |
| JEL: | J22 H55 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:max:cprwps:119&r=ias |
| By: | Eva Hromadkova |
| Abstract: | We assess the ability of health insurance plans with gatekeeping restrictions to control the utilization of medical care through their inuence on the choice of the initial provider. Empirical results are based on the individuallevel utilization panel data from 2001-2006 Medical Expenditure Panel Survey. We nd only small dierences between the initial provider chosen by individuals enrolled in gatekeeping and non-gatekeeping plans. This, together with the fact that within gatekeeping plans, 21 percent of patients self-refer to specialists, imply that the intended cost-containment eect of gatekeeping, namely restricting the utilization of specialty care, is surprisingly weak. |
| Keywords: | Health insurance, gatekeeping, health care utilization, episodic demand model, initial provider. |
| JEL: | I11 I19 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp400&r=ias |
| By: | Stefan Staubli |
| Abstract: | This paper explores the labor supply effects of a large-scale policy change in the Austrian disability insurance program, which tightened eligibility criteria for men above a certain age. Using administrative data on the universe of Austrian private-sector employees, the results of difference-in-difference type regressions suggest a substantial and statistically significant decline in disability enrollment of 5-5.7 percentage points and a modest increase in employment of 1.4 to 2.7 percentage points. On the other hand, the policy change had important spillover effects into the unemployment and sickness insurance program. Specifically, the share of individuals receiving unemployment benefits increased by roughly 3 and the share receiving sickness insurance benefits by 0.6 percentage points. |
| Keywords: | Disability Insurance, Eligibility Criteria, Labor Supply, Policy Reform |
| JEL: | H53 H55 J21 J64 J68 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2009:2009-31&r=ias |
| By: | Stefan Staubli |
| Abstract: | This paper explores the labor supply effects of a large-scale policy change in the Austrian disability insurance program, which tightened eligibility criteria for men above a certain age. Using administrative data on the universe of Austrian private-sector employees, the results of difference-in-difference type regressions suggest a substantial and statistically significant decline in disability enrollment of 5-5.7 percentage points and a modest increase in employment of 1.4 to 2.7 percentage points. On the other hand, the policy change had important spillover effects into the unemployment and sickness insurance program. Specifically, the share of individuals receiving unemployment benefits increased roughly by 3 percentage points and the share receiving sickness insurance benefits by 0.6 percentage points. |
| Keywords: | Disability insurance, eligibility criteria, labor supply, policy reform |
| JEL: | H53 H55 J21 J64 J68 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:458&r=ias |
| By: | Stefan Staubli |
| Abstract: | This paper explores the labor supply effects of a large-scale policy change in the Austrian disability insurance program, which tightened eligibility criteria for men above a certain age. Using administrative data on the universe of Austrian private-sector employees, the results of difference-in-difference type regressions suggest a substantial and statistically significant decline in disability enrollment of 5-5.7 percentage points and a modest increase in employment of 1.4 to 2.7 percentage points. On the other hand, the policy change had important spillover effects into the unemployment and sickness insurance program. Specifically, the share of individuals receiving unemployment benefits increased roughly by 3 percentage points and the share receiving sickness insurance benefits by 0.6 percentage points. |
| Keywords: | Disability Insurance, Eligibility Criteria, Labor Supply, Policy Reform |
| JEL: | H53 H55 J21 J64 J68 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:jku:nrnwps:2009_30&r=ias |
| By: | John Micklewright (Depatment of Quantitative Social Science - Institute of Education, University of London.); Gyula Nagy (Department of Human Resources, Corvinus University of Budapest) |
| Abstract: | Programme administration is a relatively neglected issue in the analysis of disincentive effects of unemployment benefit systems. We investigate this issue with a field experiment in Hungary involving random assignment of benefit claimants to treatment and control groups. Treatment increases the monitoring of claims - claimants make more frequent visits to the employment office and face questioning about their search behaviour. Treatment has quite a large effect on durations on benefit of women aged 30 and over, while we find no effect for younger women or men. |
| Keywords: | field experiment, monitoring, job search, unemployment insurance, Hungary |
| JEL: | J64 J65 P23 |
| Date: | 2009–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:qss:dqsswp:0902&r=ias |
| By: | Kousky, Carolyn (Resources for the Future); Cooke, Roger (Resources for the Future) |
| Abstract: | Adapting to climate change will not only require responding to the physical effects of global warming, but will also require adapting the way we conceptualize, measure, and manage risks. Climate change is creating new risks, altering the risks we already face, and also, importantly, impacting the interdependencies between these risks. In this paper we focus on three particular phenomena of climate related risks that will require a change in our thinking about risk management: global micro-correlations, fat tails, and tail dependence. Consideration of these phenomena will be particularly important for natural disaster insurance, as they call into question traditional methods of securitization and diversification. |
| Keywords: | tail dependence, micro-correlations, fat tails, damage distributions, climate change |
| JEL: | Q54 G22 C02 |
| Date: | 2009–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-09-03-rev&r=ias |
| By: | Moyen, Stéphane; Stähler, Nikolai |
| Abstract: | The aim of this paper is to study the optimal duration of unemployment benefit entitlement duration across the business cycle. We wonder if the entitlement duration should be prolonged in bad and shortened in good times. Because of consumption smoothing, such a countercyclical policy can be welfare-enhancing as long as it does not affect labor market adjustment too severely or even helps to reduce inefficiencies there. If, however, the labor market is quite inflexible already, procyclical behavior may be preferable. In a calibrated dynamic business cycle framework, we find that countercyclical benefit entitlement duration may be preferable in the US but not in Europe. -- |
| Keywords: | Unemployment insurance,entitlement duration,business cycle |
| JEL: | E32 E62 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:200930&r=ias |
| By: | Randall S. Jones |
| Abstract: | Japan’s health-care system has provided universal access to care and contributed to the outstanding health status of the Japanese. Public spending has been kept below the OECD average through high co-payment rates and reductions in medical fees. However, with continued upward pressure on expenditure, in part due to rapid population ageing, reforms are needed to limit spending increases through greater efficiency, while improving quality. It is essential to shift long-term care out of hospitals, reform the pricing mechanism away from pay-for-visit, increase the use of generic drugs, encourage healthy ageing and promote restructuring in the hospital sector. Quality should be improved by increasing the availability of effective new drugs and medical devices. In funding spending increases, it is important to limit the share borne by employees to avoid negative effects on the labour market. Japan may need to allow more mixed billing to enhance access to some advanced medical treatments.<P>La réforme des soins de santé au Japon : Maîtriser les dépenses, améliorer la qualité et préserver l’équité<BR>Le système de santé japonais assure l’accès universel aux soins, contribuant à l’excellent état de santé de la population du pays. Le niveau des dépenses publiques a été maintenu au-dessous de la moyenne de l’OCDE en demandant aux assurés une participation élevée aux coûts et en réduisant les tarifs médicaux. Toutefois, comme les dépenses subissent toujours des pressions à la hausse, en partie du fait du vieillissement rapide de la population, il faut procéder à des réformes pour limiter leur accroissement par le biais d’une meilleure efficacité, tout en améliorant la qualité. Il est indispensable de transférer les soins de longue durée en dehors des hôpitaux, de réformer le système de rémunération en abandonnant le paiement à l’acte, de développer l’utilisation des médicaments génériques, d’encourager un vieillissement en bonne santé et de promouvoir la restructuration du secteur hospitalier. La qualité doit être améliorée en développant l’offre de nouveaux médicaments et dispositifs médicaux efficaces. Pour financer les dépenses supplémentaires, il importe de limiter la part assumée par les salariés de manière à éviter des retombées négatives sur le marché du travail. Le Japon devra peut-être permettre encore plus la facturation groupée pour améliorer l’accès à certains traitements médicaux de pointe. |
| Keywords: | Diagnosis Procedure Combination, drug lag, generic drugs, health insurance, healthy ageing, hospital, Japanese health care, long-term care, medical devices, medical expenditures, mixed billing, National Health Insurance, PMDA, universal coverage, assurance maladie, assurance santé nationale, assurance, couverture universelle, dépenses médicales, dispositifs médicaux, facturation groupée, hôpital, médicaments génériques, PMDA, retard dans le domaine des médicaments, soins de longue durée, système de santé japonais, vieillissement en bonne santé |
| JEL: | I1 |
| Date: | 2009–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:739-en&r=ias |
| By: | Peter R. Mueser (Department of Economics, University of Missouri-Columbia); Marios Michaelides |
| Abstract: | We examine how gender, racial, and ethnic variation in unemployment and Unemployment Insurance (UI) receipt changed over time in the U.S. economy and how these changes are influenced by shifts in the occupational and industrial composition of employment. Using Current Population Survey (CPS) data, we find that, in the past 50 years, the unemployment rates for women, nonwhites, and Hispanics have been converging to those of the rest of the population. Between 1992 and 2007, women had the same unemployment rates as men; nonwhites still had higher unemployment rates than whites; and the rate for Hispanics was approaching that of non-Hispanics. Once we control for industry-occupation differences, women have higher unemployment and UI receipt rates than men, while Hispanics have similar unemployment rates but lower UI receipt rates than non-Hispanics. Nonwhites still have appreciably higher unemployment rates but the same UI receipt rates as whites. |
| Keywords: | Unemployment, Unemployment Insurance, Gender, Race, Ethnicity |
| JEL: | J11 J15 J16 J65 |
| Date: | 2009–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:0912&r=ias |
| By: | Rudiger Ahrend; Jens Arnold; Fabrice Murtin |
| Abstract: | This paper examines how a range of stability-oriented regulatory policies for banking and insurance are related to selected stability and competition outcomes in these sectors. Based on survey information on financial market regulation, policy indicators for eight areas of prudential banking regulation are constructed, in addition to indicators for the insurance sector. Despite incomplete information on some areas that turned out to be important in the context of the recent financial crisis, the indicators correlate well with different measures of financial stability, both during the recent crisis and beyond. Furthermore, the results do not support the view that there is a general trade-off between stability-oriented regulatory policies and competition in banking and insurance.<P>Régulation prudentielle et concurrence sur les marchés financiers<BR>Cette étude examine le lien entre les politiques de régulation prudentielle des industries de la banque et de l’assurance et les résultats observés dans ces secteurs en termes de stabilité et de concurrence. Sur la base d’enquêtes portant sur la régulation des marchés financiers, des indicateurs sont construits pour évaluer les politiques touchant à huit segments différents de la régulation bancaire prudentielle, ainsi qu‘au secteur de l’assurance. En dépit de lacunes dans le renseignement de certains segments de la régulation, lacunes préjudiciables dans le contexte récent de crise financière, ces indicateurs présentent une corrélation satisfaisante avec diverses mesures de stabilité financière, à la fois dans ce contexte de crise et au-delà. En outre, les résultats ne confirment pas l’hypothèse qu’il y aurait en général un arbitrage entre la régulation prudentielle et la concurrence dans les secteurs de la banque et de l’assurance. |
| Keywords: | banking, competition, insurance, prudential regulation, stability, assurance, banque, concurrence, régulation prudentielle, stabilité |
| JEL: | E44 G14 G21 G22 G28 L11 |
| Date: | 2009–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:735-en&r=ias |
| By: | Nicola Gennaioli; Andrei Shleifer |
| Abstract: | We present a model of intuitive inference, called “local thinking,” in which an agent combines data received from the external world with information retrieved from memory to evaluate a hypothesis. In this model, selected and limited recall of information follows a version of the respresentativeness heuristic. The model can account for some of the evidence on judgment biases, including conjunction and disjunction fallacies, but also for several anomalies related to demand for insurance. |
| Keywords: | Local thinking, representativeness, stereotypes, insurance. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1186&r=ias |
| By: | Irmingard Eder; Claudia Kl\"uppelberg |
| Abstract: | For the sum process $X=X^1+X^2$ of a bivariate L\'evy process $(X^1,X^2)$ with possibly dependent components, we derive a quintuple law describing the first upwards passage event of $X$ over a fixed barrier, caused by a jump, by the joint distribution of five quantities: the time relative to the time of the previous maximum, the time of the previous maximum, the overshoot, the undershoot and the undershoot of the previous maximum. The dependence between the jumps of $X^1$ and $X^2$ is modeled by a L\'evy copula. We calculate these quantities for some examples, where we pay particular attention to the influence of the dependence structure. We apply our findings to the ruin event of an insurance risk process. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:0912.1925&r=ias |
| By: | Eckhard Platen (School of Finance and Economics, University of Technology, Sydney) |
| Abstract: | Long dated contingent claims are relevant in insurance, pension fund management and derivative pricing. This paper proposes a paradigm shift in the valuation of long term contracts, away from classical no-arbitrage pricing towards pricing under the real world probability measure. In contrast to risk neutral pricing, the long term excess return of the equity market, known as the equity premium, is taken into account. Further, instead of the savings account, the numeraire portfolio isused, as the fundamental unit of value in the analysis. The numeraire portfolio is the strictly positive, tradable portfolio that when used as benchmark makes all benchmarked non negative portfolios supermartingales, which means intuitively that these are downward trending or at least trendless. Furthermore, the benchmarked real world price of a benchmarked claimis defined to be its real world conditional expectation. This yields the minimal possible price for its hedgable part and minimizes the variance of the benchmarked hedge error. The pooled total benchmarked replication error of a large insurance company or bank essentially vanishes due to diversification. Interestingly, in long terml iability and asset valuation, real world pricing can lead to significantly lower prices than suggested by classical no-arbitragea rguments. Moreover, since the existence of some equivalent risk neutral probability measure is no longer required, a wider and more realistic modeling framework is available for exploration. Classical actuarial and risk neutral pricing emerge as special cases of real world pricing. |
| Keywords: | long term pricing; real world pricing; risk neutral pricing; numeraire portfolio; law of the minimal price; strong arbitrage; hedges imulation; diversification; liquidity premium |
| Date: | 2009–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:uts:rpaper:262&r=ias |
| By: | Nisar Ahmad (School of Economics and Management, University of Aarhus, Denmark); Michael Svarer (School of Economics and Management, University of Aarhus, Denmark) |
| Abstract: | This paper simultaneously investigates the effectiveness of benefit sanctions and active labour market programmes on the exit rate from unemployment using Danish data. In the data about one third of the individuals who are sanctioned also participate in some active labour market programmes (ALMPs). Hence, modeling only one of them as treatment might over or underestimate the true effect. Therefore, by using a multivariate mixed proportional hazard model (MMPH), we model the hazard rate out of unemployment along with the sanction rate and hazard rate into active labour market programmes. We optimally select the number of supports point for the distribution of unobserved heterogeneity. Results show that pre-specifying two support points underestimates the effect of sanctions and active labour market programmes. Failing to control for selectivity for sanctions not only underestimates the treatment effect of sanctions but also biases the treatment effect of ALMPs. |
| Keywords: | competing risks, unemployment insurance, timing of events , NPMLE, MMPH |
| JEL: | C14 C15 C41 J64 J65 J68 |
| Date: | 2009–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2009-14&r=ias |