nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒04‒09
seven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Design of a Social Security System: Pension System vs. Unemployment Insurance By Yusuke Kinai
  2. Flexible Retirement By Daniel van Vuuren
  3. Misallocation of Capital in a Model of Endogenous Financial Intermediation and Insurance By Radim Bohacek; Hugo Rodríguez-Mendizábal
  4. Financial Risks and the Pension Protection Fund: Can it Survive Them? By David Blake; John Cotter; Kevin Dowd
  5. Labour market effects of unemployment accounts: insights from behavioural economics By Thomas van Huizen; Janneke Plantenga
  6. Is Combined Microfinance an Instrument to enhance Sustainable Pro-Poor Public Policy Outcomes? By Koen Rossel-Cambier
  7. Pooling, Pricing and Trading of Risks By Flåm, Sjur Didrik

  1. By: Yusuke Kinai (Graduate School of Economics, Osaka University)
    Abstract: This paper presents consideration of how the social security system evolves as the attributes of voters change. In our setting, policy determination is based on majority voting. The government has two components of social security policy: a pension system and unemployment insurance. When workers constitute most voters, the pension system is supported and when unemployed people are the majority, unemployment insurance is adopted. Under this setting, employing the concept of structure-induced equilibrium developed by Shepsle (1979), the present paper describes how the contents of the social security system evolve depending on the dynamics of capital accumulation and the unemployment rate, and demonstrates the possibility that one or the other social security system ceases to exist in certain instances.
    Keywords: Social Security, Pension System vs. Unemployment Insurance, Majority Voting, Structureinduced equilibrium.
    JEL: E61 H53 H55
    Date: 2011–03
  2. By: Daniel van Vuuren
    Abstract: Flexible retirement - that is, the opportunity to choose one’s own personal retirement age - serves as a hedge against pension risk and provides insurance to workers facing health or productivity shocks. This paper discusses three conditions to provide insurance through flexible retirement.
    JEL: J26 H55
    Date: 2011–03
  3. By: Radim Bohacek; Hugo Rodríguez-Mendizábal
    Abstract: In this paper we analyze productivity and welfare losses from capital misallocation in a general equilibrium model of occupational choice and endogenous financial intermediation. We study the effects of borrowing and lending, insurance, and risk sharing on the optimal allocation of resources. We find that financial markets together with general equilibrium effects have large impact on entrepreneurs' entry and firm-size decisions. Efficiency gains are increasing in the quality of financial markets, particularly in their ability to alleviate a financing constraint by providing insurance against idiosyncratic risk.
    Keywords: Financial markets and the macroeconomy; Occupational choice; Personal income and wealth and their distributions
    JEL: E44 J24 D31
    Date: 2011–03–15
  4. By: David Blake; John Cotter; Kevin Dowd
    Abstract: This paper discusses the financial risks faced by the UK Pension Protection Fund (PPF) and what, if anything, it can do about them. It draws lessons from the regulatory regimes under which other financial institutions, such as banks and insurance companies, operate and asks why pension funds are treated differently. It also reviews the experience with other government-sponsored insurance schemes, such as the US Pension Benefit Guaranty Corporation, upon which the PPF is modelled. We conclude that the PPF will live under the permanent risk of insolvency as a consequence of the moral hazard, adverse selection, and, especially, systemic risks that it faces.
    Date: 2011–03
  5. By: Thomas van Huizen; Janneke Plantenga
    Abstract: This paper reconsiders the behavioural effects of replacing the existing unemployment insurance system with unemployment accounts (UAs). Under this alternative system, workers are required to save a fraction of their wage in special accounts whereas the unemployed are allowed to withdraw savings from these accounts. Previous studies argued that such a reform will improve employment incentives considerably and thereby lead to a dramatic decrease in unemployment levels and durations. We show that this expected impact hinges critically on the assumptions on intertemporal choice. Using recent insights from behavioural economics, we demonstrate that the theoretical impact of UAs on unemployment is limited. This study points out that the overall effect of introducing an UA system on labour market behaviour is ambiguous rather than substantially positive.
    Keywords: unemployment insurance; unemployment accounts; time preferences; behavioural economics
    JEL: J64 J65
    Date: 2011–03
  6. By: Koen Rossel-Cambier
    Abstract: Product diversification involving simultaneously microcredit, savings or insurance services –also called combined microfinance (CMF)- can both leverage and challenge policy outcomes. This paper reviews two complementary questions in this regard: Which are the possible effects of CMF on public policy? and; How can public policy influence CMF outcomes? A literature review, findings from qualitative assessments and a case study in Barbados highlight the increased challenging environment when supervising, regulating and promoting CMF. When preparing regulation, one has to ensure that the necessary technical and organisational capacity is in place to ensure proper monitoring and oversight. When supporting CMF, policy makers should strive at enhancing smart ways of subsidizing. CMF may stimulate economic and outreach policy outcomes. Still, as it can have adverse effects on the depth of poverty outreach, pro-poor and gender specific policy measures need to be put in place to accompany MFIs engaging in CMF. This paper calls for a more ambitious research agenda to accompany the increasingly complex demand and supply side elements relating to CMF public policy oversight.
    Keywords: microfinance; microinsurance; microcredit; microsavings; public policy
    JEL: C12 G21 G22 L31 O54
    Date: 2011–03
  7. By: Flåm, Sjur Didrik (University of Bergen, Department of Economics)
    Abstract: Abstract. Exchange of risks is considered here as a transferableutility, cooperative game, featuring risk averse players. Like in competitive equilibrium, a core solution is determined by shadow prices on state-dependent claims. And like in finance, no risk can properly be priced only in terms of its marginal distribution. Pricing rather depends on the pooled risk and on the convolution of individual preferences. The paper elaborates on these features, placing emphasis on the role of prices and incompleteness. Some novelties come by bringing questions about existence, computation and uniqueness of solutions to revolve around standard Lagrangian duality. Especially outlined is how repeated bilateral trade may bring about a price-supported core allocation.
    Keywords: Keywords: cooperative game; transferable utility; core; risks; mutual insurance; contingent prices; bilateral exchange; supergradients; stochastic approximation.
    JEL: C71 D52 G12
    Date: 2011–04–01

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