nep-ias New Economics Papers
on Insurance Economics
Issue of 2010‒10‒16
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Insuring student loans against the risk of college failure By Satyajit Chatterjee; Felicia Ionescu
  2. Does Health Insurance Coverage Lead to Better Health and Educational Outcomes? Evidence from Rural China By Yuyu Chen; Ginger Zhe Jin
  3. The Role of Industry and Occupation in U.S. Unemployment Differentials by Gender, Race and Ethnicity: Recent Trends By Peter R. Mueser; Marios Michaelides
  4. Hoivavakuutuksen tarve ja arvo erilaisille kotitalouksille By Niku Määttänen; Tarmo Valkonen
  5. Ex-ante methods to assess the impact of social insurance policies on labor supply with an application to Brazil By Robalino, David A.; Zylberstajn, Eduardo; Zylberstajn, Helio; Afonso, Luis Eduardo
  6. Rethinking survivor benefits By James, Estelle
  7. Toolkit on tackling error, fraud and corruption in social protection programs By Stolk, Christian van; Tesliuc, Emil D.
  8. Information-based models for finance and insurance By Edward Hoyle

  1. By: Satyajit Chatterjee; Felicia Ionescu
    Abstract: Participants in student loan programs must repay loans in full regardless of whether they complete college. But many students who take out a loan do not earn a degree (the dropout rate among college students is between 33 to 50 percent). The authors examine whether insurance against college-failure risk can be offered, taking into account moral hazard and adverse selection. To do so, they develop a model that accounts for college enrollment, dropout, and completion rates among new high school graduates in the US and use that model to study the feasibility and optimality of offering insurance against college failure risk. The authors find that optimal insurance raises the enrollment rate by 3.5 percent, the fraction acquiring a degree by 3.8 percent and welfare by 2.7 percent. These effects are more pronounced for students with low scholastic ability (the ones with high failure probability).
    Keywords: Student loans ; Risk management ; Education, Higher - Economic aspects ; Insurance
    Date: 2010
  2. By: Yuyu Chen; Ginger Zhe Jin
    Abstract: Many governments advocate nationwide health insurance coverage but the effects of such a program are less known in developing countries. We use part of the 2006 China Agricultural Census (CAC) to examine whether the recent health insurance coverage in rural China has affected children mortality, pregnancy mortality, and the school enrollment of the 6-16 year old. Our data represent a census of 5.9 million people living in eight low-income rural counties, four of which have adopted the New Cooperative Medical System (NCMS) by 2006 and the other four did not adopt NCMS until 2007. In the counties that offer NCMS, a household may take or not take the insurance. A first look of the data suggests that enrolling in NCMS is associated with better school enrollment and lower mortality of young children and pregnant women. However, using a difference-in-difference propensity score method, we find most of these differences are driven by the endogenous introduction and take up of NCMS, and classical propensity score matching fails to address the selection bias. While NCMS does not show beneficial impacts on the average population, we find some evidence that NCMS helps improve the school enrollment of six-year-olds.
    JEL: I18 I21 I38
    Date: 2010–09
  3. 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 confirm 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. By 1992, women had the same unemployment rates as men; whereas nonwhite and Hispanic rates remained above those for the full population. Yet, once we adjust for industry and occupation differences in employment, women have higher unemployment rates than men, while Hispanics have similar unemployment rates to non-Hispanics. Nonwhites still have appreciably higher unemployment rates than whites. For women, the patterns of UI receipt correspond with unemployment differentials. Nonwhites and Hispanics are less likely to receive UI benefits than their unemployment experience would imply. The analysis also considers how differences in volatility of unemployment are explained by industrial and occupational distributions.
    Keywords: Unemployment, Unemployment Insurance, Gender, Race, Ethnicity
    JEL: J11 J15 J16 J65
    Date: 2010–09–08
  4. By: Niku Määttänen; Tarmo Valkonen
    Abstract: We study old age care expenditures and means to prepare for them. The expected size of the expenditures is described both from the point of view of individuals and the municipalities who provide the services. We use a numerical stochastic life cycle model to research how much various individuals would benefit from a possibility to buy a long term care insurance policy in stead of using private saving to cover the uncertain expenditures. In addition, the influence of customer fees and vouchers on the value of the long term care insurance is analyzed.
    Date: 2010–10–04
  5. By: Robalino, David A.; Zylberstajn, Eduardo; Zylberstajn, Helio; Afonso, Luis Eduardo
    Abstract: This paper solves and estimates a stochastic model of optimal inter-temporal behavior to assess how changes in the design of the unemployment benefits and pension systems in Brazil could affect savings rates, the share of time that individuals spend outside of the formal sector, and retirement decisions. Dynamics depend on five main parameters: preferences regarding consumption and leisure, preferences regarding formal versus informal work, attitudes towards risks, the rate of time preference, and the distribution of an exogenous shock that affects movements in and out of the social insurance system (given individual decisions). The yearly household survey is used to create a pseudo panel by age-cohorts and estimate the joint distribution of model parameters based on a generalized version of the Gibbs sampler. The model does a good job in replicating the distribution of the members of a given cohort across states (in or out of the social insurance / active or retired). Because the parameters are related to individual preferences or exogenous shocks, the joint distribution is unlikely to change when the social insurance system changes. Thus, the model is used to explore how alternative policy interventions could affect behaviors and through this channel, benefit levels and fiscal costs. The results from various simulations provide three main insights: (i) the Brazilian social insurance system today might generate unnecessary distortions (lower savings rates and less formal employment) that increase the costs of the system and can induce regressive redistribution; (ii) there are important interactions between the unemployment benefits and pension systems, which calls for joint policy analysis when considering reforms; and (iii) current distortions could be reduced by creating an actuarial link between contributions and benefits and then combining matching contributions and anti-poverty targeted transfers to cover individuals with limited or no savings capacity.
    Keywords: Pensions&Retirement Systems,Emerging Markets,Labor Policies,Labor Markets,Debt Markets
    Date: 2009–12–01
  6. By: James, Estelle
    Abstract: This paper provides a framework for analyzing the efficiency and equity of survivor benefit programs. These programs were originally designed to support families when the main wage-earner died, in an era where women rarely worked, fertility rates were high, and widows were unable to support themselves and their children. Yet, voluntary saving and insurance were often insufficient due to myopia. Mandatory survivor benefits helped to achieve lifetime consumption smoothing for the family and to prevent poverty among elderly widows the group where old age poverty is concentrated. The question is these programs still needed in an era when most women work and fertility rates have fallen and, if so, how should they be designed? The author argues that, even in a world of perfect gender equality, mandatory family co-insurance may still be justified because couples are unlikely to plan adequately for household economies of scale. This leads the cost of living of a widow(er) to be much more than half that of a couple. In addition, some disparity in work and wage patterns of men and women remains in every country. While such programs may benefit both spouses, women are the greatest recipients because they outlive their husbands. However, as currently designed, many survivor benefit programs entail work disincentives and perverse redistributions from women who work in the market to those who do not, from singles and dual career couples to single-earner couples and sometimes from low- to high-earning families. These cross-subsidies penalize women who work in the market and therefore may discourage such work, decrease their income and increase their old-age poverty rates. The insurance goal can be achieved without these negative incentives and redistributions by internalizing the cost within the family rather than passing it on to the common pool and by allowing widow(ers) to keep their own pensions in addition to the survivor benefits.
    Keywords: Gender and Law,Economic Theory&Research,Access to Finance,Population Policies,Debt Markets
    Date: 2009–12–01
  7. By: Stolk, Christian van; Tesliuc, Emil D.
    Abstract: This toolkit is intended to provide a concise but thorough resource for social protection practitioners on how to minimize error, fraud and corruption in their program(s). It is organized in five sections. The first section introduces the topic, by clarifying the key concepts and spelling out the rationale for this activity. The second section provides a generic framework for combating error, fraud, and corruption (EFC), developed around four building blocks of prevention; detection; deterrence; and measurement. The third section reviews the instruments, tools and mechanisms used to combat EFC in social protection programs, structured by strategic actions (prevention; detection; deterrence), by level of government and over time (how these tools and instruments can be developed over time). Section four includes generic terms of reference for the assessment of the mechanisms for combating EFC in social protection programs. The last section summarizes the main findings for three such diagnostics from the Kyrgyz Republic and the Ukraine.
    Keywords: Public Sector Corruption&Anticorruption Measures,Insurance&Risk Mitigation,E-Business,Debt Markets,Emerging Markets
    Date: 2010–03–01
  8. By: Edward Hoyle
    Abstract: In financial markets, the information that traders have about an asset is reflected in its price. The arrival of new information then leads to price changes. The `information-based framework' of Brody, Hughston and Macrina (BHM) isolates the emergence of information, and examines its role as a driver of price dynamics. This approach has led to the development of new models that capture a broad range of price behaviour. This thesis extends the work of BHM by introducing a wider class of processes for the generation of the market filtration. In the BHM framework, each asset is associated with a collection of random cash flows. The asset price is the sum of the discounted expectations of the cash flows. Expectations are taken with respect (i) an appropriate measure, and (ii) the filtration generated by a set of so-called information processes that carry noisy or imperfect market information about the cash flows. To model the flow of information, we introduce a class of processes termed L\'evy random bridges (LRBs), generalising the Brownian and gamma information processes of BHM. Conditioned on its terminal value, an LRB is identical in law to a L\'evy bridge. We consider in detail the case where the asset generates a single cash flow $X_T$ at a fixed date $T$. The flow of information about $X_T$ is modelled by an LRB with random terminal value $X_T$. An explicit expression for the price process is found by working out the discounted conditional expectation of $X_T$ with respect to the natural filtration of the LRB. New models are constructed using information processes related to the Poisson process, the Cauchy process, the stable-1/2 subordinator, the variance-gamma process, and the normal inverse-Gaussian process. These are applied to the valuation of credit-risky bonds, vanilla and exotic options, and non-life insurance liabilities.
    Date: 2010–10

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