nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒03‒05
nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Perception of Innovative Crop Insurance in Australia By Meuwisen, Miranda P.M.; Molnar, Tams A.
  2. On the effects of deposit insurance and observability on bank runs: an experimental study By Alfonso Rosa García; Hubert Janos Kiss; Ismael Rodríguez Lara
  3. An attempt to modelling revenue insurance schemes at the farm level by means of Positive Mathematical Programming By Severini, Simone; Cortigiani, Raffaele
  4. Market Inefficiency, Insurance Mandate and Welfare: U.S. Health Care Reform 2010 By Juergen Jung; Chung Tran
  5. Ruin probabilities in tough times - Part 2 - Heavy-traffic approximation for fractionally differentiated random walks in the domain of attraction of a nonGaussian stable distribution By Ph. Barbe; W. P. McCormick
  6. A quantitative analysis of unemployment benefit extensions By Makoto Nakajima
  7. Is longer unemployment rewarded with longer job tenure? By Miki Kohara; Masaru Sasaki; Tomohiro Machikita
  8. Portfolio Insurance under a risk-measure constraint By Carmine De Franco; Peter Tankov
  9. The Political Setting of Social Security Contributions in Europe in the Business Cycle By Toralf Pusch; Ingmar Kumpmann

  1. By: Meuwisen, Miranda P.M.; Molnar, Tams A.
    Abstract: Worldwide, extreme climate risks cause stakeholders in food supply chains to search for new risk management tools. In Australia, recently soâcalled crop yield simulation insurance has been introduced based on an integrated agrometeorological simulation model. Current uptake is relatively low, possibly because Australian farmers perceive commodity price risk as more important than climate risk. Also, they perceive risk management tools such as water management and diversification as more important than buying crop insurance. Still, opportunities seem to exist for new insurance products, such as crop yield simulation insurance, as indicated by farmersâ interest into such products. Outcomes are useful in worldwide discussions on risk management opportunities in dryland agriculture.
    Keywords: Crop yield simulation, Yield insurance, Wheat farmers, Personal interviews, Agribusiness, Farm Management, Food Consumption/Nutrition/Food Safety, Production Economics, Research Methods/ Statistical Methods,
    Date: 2010–10
  2. By: Alfonso Rosa García (Universidad de Murcia); Hubert Janos Kiss (Universidad Autónoma de Madrid); Ismael Rodríguez Lara (Universidad de Alicante)
    Abstract: We study the effects of deposit insurance and observability of previous actions on the emergence of bank runs by means of a controlled laboratory experiment. We consider three depositors in the line of a bank, who decide between withdrawing or keeping their money deposited. We have three treatments with different levels of deposit insurance which reflect the losses a depositor may incur in the case of a bank run. We find that different levels of deposit insurance and the possibility of observing other depositors’ actions affect the likelihood of bank runs. When decisions are not observable, higher levels of deposit insurance decrease the probability of bank runs. When decisions are observable, this is not the case. These results suggest that (i) observability might be considered as a partial substitute of deposit insurance, and that (ii) the optimal deposit insurance should take into account the degree of observability.
    Keywords: deposit insurance, observability, bank runs, experimental economics
    JEL: G21 C90
    Date: 2011–02
  3. By: Severini, Simone; Cortigiani, Raffaele
    Abstract: Farmers face increasing income uncertainty and the debate is growing on the role of insurance schemes and of public support in this field. This paper applies a PMP modelling approach that takes into explicit consideration risk aversion behaviour to test its applicability to evaluating the potential impact of insurance schemes. This is done by introducing a revenue insurance scheme into a model developed on a small group of crop farms in Italy. The paper represents a preliminary assessment of the soundness of the proposed approach. It identifies some limitations that should be overcome to improve the proposed approach. Despite these limitations, it seems a useful tool to investigate the impact of insurance schemes and policy relevant parameters such as premium and coverage rates. Indeed, it permits the assessment of how this affects production choices, farm profitability and the impact of public support to reduce the net premium paid by farmers.
    Keywords: Insurance schemes, PMP, Farmersâ behaviour, Risk aversion, Agricultural and Food Policy, Q12, C61, Q18,
    Date: 2011–02–10
  4. By: Juergen Jung (Department of Economics, Towson University); Chung Tran (School of Economics, University of New South Wales)
    Abstract: In this paper we develop a stochastic dynamic general equilibrium overlapping generations (OLG) model with endogenous health capital to study the macroeconomic effects of the Affordable Care Act of March 2010 also known as the Obama health care reform. We find that the insurance mandate enforced with fines and premium subsidies successfully reduces adverse selection in private health insurance markets and subsequently leads to almost universal coverage of the working age population. On other hand, spending on health care services increases by almost 6 percent due to moral hazard of the newly insured. Notably, this increase in health spending is partly financed by the larger pool of insured individuals and by government spending. In order to finance the subsidies the government needs to either introduce a 2.7 percent payroll tax on individuals with incomes over $200,000, increase the consumption tax rate by about 1.1 percent, or cut government spending about 1 percent of GDP. A stable outcome across all simulated policies is that the reform triggers increases in health capital, decreases in labor supply, and decreases in the capital stock due to crowding out effects and tax distortions. As a consequence steady state output decreases by up to 2 percent. Overall, we find that the reform is socially beneficial as welfare gains are observed for most generations along the transition path to the new long run equilibrium.
    Keywords: Affordable Care Act 2010; Endogenous Health Capital; Life-Cycle Health Spending and Financing; Dynamic Stochastic General Equilibrium
    JEL: H51 I18 I38 E21 E62
    Date: 2010–12
  5. By: Ph. Barbe (CNRS); W. P. McCormick (UGA)
    Abstract: Motivated by applications to insurance mathematics, we prove some heavy-traffic limit theorems for processes which encompass the fractionally differentiated random walk as well as some FARIMA processes, when the innovations are in the domain of attraction of a nonGaussian stable distribution.
    Date: 2011–02
  6. By: Makoto Nakajima
    Abstract: This paper measures the effect of extensions of unemployment insurance (UI) benefits on the unemployment rate using a calibrated structural model that features job search and consumption-saving decision, skill depreciation, UI eligibility, and UI benefit extensions that capture what has happened during the current downturn. The author finds that the extensions of UI benefits contributed to an increase in the unemployment rate by 1.2 percentage points, which is about a quarter of an observed increase during the current downturn (a 5.1 percentage point increase from 4.8 percent at the end of 2007 to 9.9 percent in the fall of 2009). Among the remaining 3.9 percentage points, 2.4 percentage points are due to the large increase in the separation rate, while the staggering job-finding probability contributes 1.4 percentage points. The last extension in December 2010 moderately slows down the recovery of the unemployment rate. Specifically, the model indicates that the last extension keeps the unemployment rate higher by up to 0.4 percentage point during 2011.
    Keywords: Unemployment insurance ; Unemployment
    Date: 2011
  7. By: Miki Kohara (Osaka School of International Public Policy, Osaka University); Masaru Sasaki (Institute of Social and Economic Research, Osaka University); Tomohiro Machikita (Institute of Developing Economies, Inter-disciplinary Studies Center, Japan External Trade)
    Abstract: This paper examines whether or not a prolonged unemployment period can raise the quality of job matching after unemployment. We focus on job tenure as an indicator of a good quality job match after unemployment. We match two sets of Japanese administrative data compiled by the public employment security offices: one includes information about the circumstances of job seekers receiving unemployment insurance, and the other includes information about job seekers applying for jobs. We first show a negative relationship between unemployment duration and the subsequent job duration. Restricting the sample to job seekers who lower their reservation wage in the final 59 days before expiration of unemployment insurance, we secondly show an even greater negative effect of unemployment duration on the following job duration. The importance lies not only in the duration of unemployment. If job seekers keep a high reservation wage because of the benefits of unemployment insurance, and lower it in response to the expiration of insurance, prolonged unemployment will result in short job duration after unemployment.
    Keywords: job search, quality of job match, unemployment duration, unemployment insurance
    JEL: J64 J65 J68
    Date: 2011–02
  8. By: Carmine De Franco; Peter Tankov
    Abstract: We study the problem of portfolio insurance from the point of view of a fund manager, who guarantees to the investor that the portfolio value at maturity will be above a fixed threshold. If, at maturity, the portfolio value is below the guaranteed level, a third party will refund the investor up to the guarantee. In exchange for this protection, the third party imposes a limit on the risk exposure of the fund manager, in the form of a convex monetary risk measure. The fund manager therefore tries to maximize the investor's utility function subject to the risk measure constraint.We give a full solution to this nonconvex optimization problem in the complete market setting and show in particular that the choice of the risk measure is crucial for the optimal portfolio to exist. Explicit results are provided for the entropic risk measure (for which the optimal portfolio always exists) and for the class of spectral risk measures (for which the optimal portfolio may fail to exist in some cases).
    Date: 2011–02
  9. By: Toralf Pusch; Ingmar Kumpmann
    Abstract: Social security revenues are influenced by business cycle movements. In order to support the working of automatic stabilizers it would be necessary to calculate social insurance contribution rates independently from the state of the business cycle. This paper investigates whether European countries set social contribution rates according to such a rule. By means of VAR estimations, country-specific effects can be analyzed – in contrast to earlier studies which used a panel design. As a result, some countries under investigation seem to vary their social contribution rates in a procyclical way.
    Keywords: welfare state, procyclical policy, automatic stabilizers, social insurance, fiscal policy, European Union, business cycle
    JEL: E62 H53 H55 H75 J32
    Date: 2011–02

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