nep-ias New Economics Papers
on Insurance Economics
Issue of 2010‒09‒25
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Business Cycle Dependent Unemployment Insurance By Torben M. Andersen; Michael Svarer
  2. Optimal rainfall insurance contracts for maize producers in Ghana’s Northern Region By Muamba, Francis M.; Ulimwengu, John M.
  3. Regression Discontinuity Marginal Threshold Treatment Effects By Yingying Dong; Arthur Lewbel
  4. Optimal Control of Risk Process in Random Environment By Chao Zhu
  5. Fast remote but not extreme quantiles with multiple factors. Applications to Solvency II and Enterprise Risk Management By Matthieu Chauvigny; Laurent Devineau; Stéphane Loisel; Véronique Maume-Deschamps
  6. Korea’s Unemployment Insurance in the 1998 Asian Financial Crisis and Adjustments in the 2008 Global Financial Crisis By Sung Teak Kim
  7. Crop price indemnified loans for farmers By Karlan, Dean; Kutsoati, Ed; McMillan, Margaret; Udry, Chris
  8. Ganyu Labor in Malawi: Efficiency Problems and Determinants of Supply By Dimowa, Ralitza; Michaelowa, Katharina; Weber, Anke

  1. By: Torben M. Andersen (School of Economics and Management, Aarhus University, Denmark); Michael Svarer (School of Economics and Management, Aarhus University, Denmark)
    Abstract: The consequences of business cycle contingencies in unemployment insurance systems are considered in a search-matching model allowing for shifts between "good" and "bad" states of nature. We show that not only is there an insurance argument for such contingencies, but there may also be an incentive argument. Since benefits may be less distortionary in a recession than a boom, it follows that counter-cyclical benefits reduce average distortions compared to state independent benefits. We show that optimal (utilitarian) benefits are counter-cyclical and may reduce the structural (average) unemployment rate, although the variability of unemployment may increase.
    Keywords: Unemployment benefits, business cycle, insurance, incentives
    JEL: J6 H3
    Date: 2010–09–15
  2. By: Muamba, Francis M.; Ulimwengu, John M.
    Abstract: The risk of food insecurity due to climate change in developing countries has encouraged development partners to seek new approaches to improve the resilience of subsistence agriculture to covariate shocks. Such innovative approaches include investment in safety nets such as rainfall insurance. However, a policy question remains: How does one determine the practicality of rainfall insurance for a particular district? This paper attempts to fill this gap by assessing the viability of rainfall insurance contracts for agricultural production in Ghana’s Northern Region. Using a stop-loss framework, an optimal contract is determined by choosing its parameters by maximizing the objective function in the form of covariance between crop loss and indemnity payment, the objective function given a predetermined fair premium rate. The theoretical contract is implemented using monthly rainfall and annual maize crop yield data from 1998 to 2004 from 12 districts in the Northern Region under varying premium rates. We conclude that rainfall insurance may not be viable for all districts in the Northern Region; however, the contracts are likely to be viable in districts that exhibit a positive Pearson correlation coefficient between maize yield loss and indemnity payments.
    Keywords: Climate change, maize yield, rainfall insurance,
    Date: 2010
  3. By: Yingying Dong (California State University, Fullerton); Arthur Lewbel (Boston College)
    Abstract: Consider a standard regression discontinuity model, where an outcome Y is determined in part by a binary treatment indicator T, which always (in sharp designs) or sometimes (in fuzzy designs) equals one when a running variable X exceeds a threshold c, and zero otherwise. It is well known that in these models a local average treatment effect can be nonparametrically identified under very general conditions. We show that the derivative of this treatment effect with respect to the threshold c is also nonparametrically identified in both sharp and fuzzy designs, and can be easily estimated. This marginal threshold treatment effect (MTTE) may be used to estimate the impacts of small changes in the threshold, e.g., we use it to show how raising the age of Medicare eligibility would change the probability of take up of various types of health insurance.
    Keywords: regression discontinuity, sharp design, fuzzy design, treatment effects, program evaluation, threshold, running variable, forcing variable, marginal effects, health insurance, Medicare
    JEL: C21 C25
    Date: 2010–08–01
  4. By: Chao Zhu
    Abstract: This paper is concerned with cost optimization of an insurance company. The surplus of the insurance company is modeled by a controlled regime switching diffusion, where the regime switching mechanism provides the fluctuations of the random environment. A weaker sufficient condition than that of \cite[Section V.2]{FlemingS} for the continuity of the value function is obtained. Further, the value function is shown to be a viscosity solution of a Hamilton-Jacobian-Bellman equation.
    Date: 2010–09
  5. By: Matthieu Chauvigny (R&D Milliman - Milliman); Laurent Devineau (R&D Milliman - Milliman, SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429); Stéphane Loisel (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429); Véronique Maume-Deschamps (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429)
    Abstract: For operational purposes, in Enterprise Risk Management or in insurance for example, it may be important to estimate remote (but not extreme) quantiles of some function ƒ of some random vector. The call to ƒ may be time- and resource-consuming so that one aims at reducing as much as possible the number of calls to ƒ. In this paper, we propose some ways to address this problem of general interest. We then numerically analyze the performance of the method on insurance and Enterprise Risk Management real-world case studies.
    Date: 2010–09
  6. By: Sung Teak Kim (Asian Development Bank Institute)
    Abstract: This paper analyzes the impacts of the 1998 and 2008 financial crises on the Korean labor market. We study the historical background of the Korean Employment Insurance System and the change of labor policies from the 1998 Asian financial crisis to the current 2008 global financial crisis. While it is arguable to say that the expansion of the social welfare system in the Republic of Korea is main source of difference between the two crises, it is certain that the social welfare system is one of the influential factors that helped overcome the problems of the global financial crisis. From an analysis of the Korean experience on the two financial crises, we can deduce the following. First, financial stability at the national level is important to stabilize employment. Second, countries need to develop a social welfare system ahead of any economic crisis. Third, layoffs should be the last resort to lowering labor costs, even at a time of recession. Finally, cooperation and coordination among government departments are crucial to overcome the crisis in labor market.
    Keywords: Asian financial crisis, Korea, labor market, Korean Employment Insurance System, global financial crisis, financial stability
    JEL: I30 I38 J65 J68
    Date: 2010
  7. By: Karlan, Dean; Kutsoati, Ed; McMillan, Margaret; Udry, Chris
    Abstract: Farmers face a particular set of risks that complicate the decision to borrow. We use a randomized experiment to investigate (1) the role of crop-price risk in reducing demand for credit among famers and (2) how risk mitigation changes farmers’ investment decisions. In rural Ghana, we offer farmers loans with an indemnity component that forgives 50 percent of the loan if crop prices drop below a threshold price. A control group is offered a standard loan product at the same interest rate. We find similar rates of loan uptake among all farmers and little significant impact of the indemnity component on uptake or other outcomes of interest, with the exception of higher likelihoods of garden egg cultivation and sales to market traders rather than at farmgate among recipients of indemnified loans.
    Keywords: agricultural credit, clustered randomized control trial, crop price insurance, crop prices, Impact evaluation, underinvestment,
    Date: 2010
  8. By: Dimowa, Ralitza; Michaelowa, Katharina; Weber, Anke
    Abstract: In Malawi, informal off-farm labour (ganyu) has often been described as a survival strategy which eventually drives poor rural households into even further destitution. Based on data from the Second Integrated Household Survey for 2004, we estimate the determinants of the decision to supply labour in the ganyu market and the amount of labour supplied. Our results do not support the conjecture that ganyu is necessarily a low-return strategy that confines subsistence constrained households to a vicious circle of poverty. However, we do find evidence that ganyu is used as an ex-post coping strategy in the event of shocks, and as an ex-ante social insurance mechanism. Moreover, we generally find a positive reaction of ganyu supply to an increase in the ganyu wages, and no evidence of any backward bending segment of the supply curve for households close to the subsistence level. While ganyu does not appear to drive poor households into further destitution, these households do seem to suffer the most when they face demand side constraints in times of greatest needs. --
    Keywords: rural labor supply,insurance strategies,poverty,Malawi
    JEL: O12 J22 J24
    Date: 2010

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