nep-ias New Economics Papers
on Insurance Economics
Issue of 2010‒02‒20
five papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Entropy Characterisation of Insurance Demand: Theory and Evidence By NAKATA Hiroyuki; SAWADA Yasuyuki; TANAKA Mari
  2. Asymmetric Information and the Demand for Voluntary Health Insurance in Europe By Kristian Bolin; Daniel Hedblom; Anna Lindgren; Bjorn Lindgren
  3. Consumption Risk-sharing in Social Networks By Attila Ambrus; Markus Mobius; Adam Szeidl
  4. The effects of unemployment insurance on labor supply and search outcomes : regression discontinuity estimates from Germany By Schmieder, Johannes F.; Wachter, Till von; Bender, Stefan
  5. Let them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and Toward an Individual Exchange By Leemore Dafny; Katherine Ho; Mauricio Varela

  1. By: NAKATA Hiroyuki; SAWADA Yasuyuki; TANAKA Mari
    Abstract: This paper characterises the insurance demand in terms of the entropy of the underlying probability distribution for losses. A characterisation of this nature provides the prediction that insurance for large losses with small probabilities tends to be purchased less frequently than insurance for moderate losses with higher probabilities, without deviating from the standard expected utility framework. The predictions of the theoretical model are tested empirically using household data collected in Vietnam.
    Date: 2010–02
  2. By: Kristian Bolin; Daniel Hedblom; Anna Lindgren; Bjorn Lindgren
    Abstract: Several past studies have found health risk to be negatively correlated with the probability of voluntary health insurance. This is contrary to what one would expect from standard textbook models of adverse selection and moral hazard. The two most common explanations to the counter-intuitive result are either (1) that risk-aversion is correlated with health — i.e. that healthier individuals are also more risk-averse — or (2) that insurers are able to discriminate among customers based on observable health-risk characteristics. We revisited these arguments, using data from the Survey of Health, Ageing and Retirement in Europe (SHARE). Self-assessed health served as an indicator of risk: better health, lower risk. We did, indeed, observe a negative correlation between risk and insurance but found no evidence of heterogeneous risk-preferences as an explanation to our finding.
    JEL: D82 I1
    Date: 2010–01
  3. By: Attila Ambrus; Markus Mobius; Adam Szeidl
    Abstract: We develop a model of informal risk-sharing in social networks, where relationships between individuals can be used as social collateral to enforce insurance payments. We characterize incentive compatible risk-sharing arrangements and obtain two results. (1) The degree of informal insurance is governed by the expansiveness of the network, measured by the number of connections that groups of agents have with the rest of the community, relative to group size. Two-dimensional networks, where people have connections in multiple directions, are sufficiently expansive to allow very good risk-sharing. We show that social networks in Peruvian villages satisfy this dimensionality property; thus, our model can explain Townsend's (1994) puzzling observation that village communities often exhibit close to full insurance. (2) In second-best arrangements, agents organize in endogenous "risk-sharing islands" in the network, where shocks are shared fully within, but imperfectly across islands. As a result, network based risk-sharing is local: socially closer agents insure each other more.
    JEL: D02 D31 D70
    Date: 2010–02
  4. By: Schmieder, Johannes F.; Wachter, Till von; Bender, Stefan (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "This paper evaluates the impact of large changes in the duration of unemployment insurance (UI) in different economic environments on labor supply, job matches, and search behavior. We show that differences in eligibility thresholds by exact age give rise to a valid regression discontinuity design, which we implement using administrative data on the universe of new unemployment spells and career histories over twenty years from Germany. We find that increases in UI have small to modest effects on non-employment rates, a result robust over the business cycle and across demographic groups. Thus, large expansions in UI during recessions do not lead to lasting increases in unemployment duration, nor can they explain differences in unemployment durations across countries. We do not find any effect of increased UI duration on average job quality, but show that the mean potentially confounds differential effects on job search across the distribution of UI duration. However, it appears that for a majority of UI beneficiaries increases in UI duration may lead to small declines in wages." (author's abstract, IAB-Doku) ((en))
    JEL: J30 J65
    Date: 2010–02–03
  5. By: Leemore Dafny; Katherine Ho; Mauricio Varela
    Abstract: Most non-elderly Americans purchase insurance through their employers, which sponsor a limited number of plans. We estimate how much employees would be willing to pay for the right to apply their employer subsidy to the plan of their choosing. We make use of a proprietary dataset containing information on plan offerings and enrollment for 800+ large employers between 1998 and 2006; the dataset represents over 10 million Americans annually. We estimate a model of employee preferences using the set of plans they are offered. Using the estimated parameters from this model, we predict employees’ choices in a hypothetical world in which additional plans in a market are available to them on the same terms, i.e. tax-free and subsidized by their employers. Holding employer outlays constant, we estimate that the median welfare gain from expanding choice amounts to roughly 20 percent of premiums. For the vast majority of employee groups and alternative model specifications, the gains from choice are likely to outweigh potential premium increases associated with a transition from large group to individual pricing.
    JEL: I11 L1
    Date: 2010–01

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