nep-ias New Economics Papers
on Insurance Economics
Issue of 2010‒03‒06
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Incentive Effects of Unemployment Insurance Savings Accounts: Evidence from Chile By Hartley, G.R.; Ours, J.C. van; Vodopivec, M.
  2. How Does Life Settlement Affect the Primary Life Insurance Market? By Hanming Fang; Edward Kung
  3. The Tax Exclusion for Employer-Sponsored Health Insurance By Jonathan Gruber
  4. How Changes in Unemployment Benefit Duration Affect the Inflow Into Unemployment By Ours, J.C. van; Tuit, S.
  5. Is Imprecise Knowledge Better than Conflicting Expertise? Evidence from Insurers’ Decisions in the United States By Laure Cabantous; Denis Hilton; Howard Kunreuther; Erwann Michel-Kerjan
  6. Unemployment and Portfolio Choice: Does Persistence Matter? By Vladimir Kuzin; Franziska M. Bremus

  1. By: Hartley, G.R.; Ours, J.C. van; Vodopivec, M. (Tilburg University, Center for Economic Research)
    Abstract: This study examines the determinants of job-finding rates of unemployment benefit recipients under the Chilean program. This is a unique, innovative program that combines social insurance through a solidarity fund (SF) with self-insurance in the form of unemployment insurance savings accounts (UISAs) - so as to mitigate the moral hazard problem of traditional unemployment insurance programs. Our study is the first one to empirically investigate whether UISAs improve work incentives. We find that for beneficiaries using the SF, the pattern of job finding rates over the duration of unemployment is consistent with moral hazard effects, while for beneficiaries relying on UISAs, the pattern is free of such effects. We also find that for benefit recipient not entitled to use the SF, the amount of accumulation on the UISA does not affect the exit rate from unemployment, suggesting that such individuals internalize the costs of unemployment benefts. Our results provide strong support to the idea that UISAs can improve work incentives.
    Keywords: Unemployment insurance;unemployment duration;savings accounts
    JEL: C41 H55 J64 J65 A
    Date: 2010
  2. By: Hanming Fang; Edward Kung
    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).
    JEL: G22 L11
    Date: 2010–02
  3. By: Jonathan Gruber
    Abstract: This paper reviews the issues around and impacts of the tax exclusion for employer-sponsored insurance. After reviewing the arguments for and against this policy, I present micro-simulation evidence on the federal revenue, insurance coverage, and distributional impacts of various reforms to the exclusion.
    JEL: H2 I1
    Date: 2010–02
  4. By: Ours, J.C. van; Tuit, S. (Tilburg University, Center for Economic Research)
    Abstract: We study how changes in the maximum benefit duration affec the inow into unemployment in the Netherlands. Until August 2003, workers who became un- employed after age 57.5 were entitled to unemployment benefits until the age of 65, after which they would receive old age pensions. This characteristic made it attractive for workers to enter unemployment shortly after age 57.5 rather than shortly before. Indeed, we find a peak in the inow into unemployment for workers after age 57.5. From August 2003 onwards the maximum benefit durations were reduced. We find that shortly after 2003 the peak in the inow disappeared.
    Keywords: Unemployment insurance;potential benefit duration;unemployment inflow
    JEL: H55 J64 J65
    Date: 2010
  5. By: Laure Cabantous (Nottingham University Business School); Denis Hilton (CLLE, Universite Toulouse II-Le Mirail); Howard Kunreuther (Center for Risk Management and Decision Processes The Wharton School, University of Pennsylvania); Erwann Michel-Kerjan (Center for Risk Management and Decision Processes The Wharton School, University of Pennsylvania)
    Abstract: Testing whether risk professionals (here insurers) behave differently under risk and ambiguity when they cover catastrophic risks (floods and earthquakes) and non-catastrophic risks (fires), this paper reports the results of the first field experiment in the United States designed to distinguish two sources of ambiguity: imprecise ambiguity (outside experts agree on a range of probability, but not on any point estimate) versus conflict ambiguity (each expert group provides precise probability estimates which differ from one group to another). Insurers charge higher premiums when faced with ambiguity than when the probability of a loss is well specified. Furthermore they charge more for conflict ambiguity than imprecise ambiguity for flood and hurricane hazards, but less so in the case of fire. The source of ambiguity also impacts causal inferences insurers make to reduce their uncertainty.
    Keywords: Ambiguity, Source of Uncertainty, Insurance Pricing, Decision-Making
    JEL: C93 D81 D83
    Date: 2010–02–23
  6. By: Vladimir Kuzin; Franziska M. Bremus
    Abstract: We use a life cycle model of consumption and portfolio choice to study the effects of social security on the investment decisions of households for the European case. Our model is mainly based on the one developed by Cocco, Gomes, and Maenhout (2005). We extend it by unemployment risk using Markov chains to model the transition between different employment states. In contrast to most models in the life cycle literature, our model allows for three different states, namely employment, short-term as well as long-term unemployment. This allows us to examine the effects of persistence in the unemployment process on portfolio choice. Our main findings are, first, that in case of short-term unemployment only, social security systems as those established in the EU are able to offset the negative impact of unemployment risk on the portfolio-share invested in risky assets. Second, the simulation results reveal that when allowing for long-term unemployment the equity-share is suppressed, especially for young investors. We show that this negative effect of unemployment is mainly driven by its persistence.
    Keywords: Precautionary savings, unemployment insurance, long-term unemployment, income uncertainty
    JEL: D91 E21 H31
    Date: 2010

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