nep-ias New Economics Papers
on Insurance Economics
Issue of 2010‒02‒27
two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. How Does Life Settlement Affect the Primary Life Insurance Market? By Hanming Fang; Edward Kung
  2. Economic growth and stability with public PAYG pensions and private intra-family old-age insurance By Fanti, Luciano; Gori, Luca

  1. By: Hanming Fang (Department of Economics, University of Pennsylvania); Edward Kung (Department of Economics, Duke University)
    Abstract: We study the effect of the life settlement market on the structure of long term contracts offered by the primary market for life insurance, as well as the effect on consumer welfare, using a dynamic model of life insurance with one sided commitment and bequest-driven lapsation. We show that the presence of life settlement affects the extent as well as the form of dynamic reclassification risk insurance in the equilibrium of the primary insurance market, and that the settlement market generally leads to lower consumer welfare. We also examine the primary insurers’ response to the settlement market when they can offer enriched contracts by specifying optimally chosen cash surrender values (CSVs).
    Keywords: Life insurance, dynamic insurance, secondary market
    JEL: G22 L11
    Date: 2010–02–09
  2. By: Fanti, Luciano; Gori, Luca
    Abstract: This paper investigates the steady state and dynamical effects of two historical alternatives as a means of old-age insurance – i.e., voluntary intra-family transfers from young to old members versus pay-as-you-go public pensions –, in a general equilibrium overlapping generations model with children as a desirable good. It is shown that the shift from a private system of old-age insurance to a public system of social security increases GDP per worker. Moreover, although in both cases the dynamics of capital, under myopic expectations, may be globally unstable depending on the size of the (private as well as public) inter-generational transfer, we show that such a shift significantly reduces, for plausible economies, the risk of cyclical instability which otherwise would be dramatically high, especially in countries with high degree of parsimony and low preference for children.
    Keywords: Endogenous fertility; Myopic foresight; OLG model; Private old-age support; Public PAYG pensions
    JEL: H55 J14 J18 J26 C62
    Date: 2010–02–16

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