nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒08‒15
three papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Limited insurance within the household: evidence from a field experiment in Kenya By Robinson, Jonathan
  2. The Impact of Labour Income Risk on Household Saving Decisions in Turkey (Turkiye'de Isgucu Geliri Riskinin Hanehalki Tasarruf Kararlari Uzerindeki Etkisi) By Evren Ceritoglu
  3. The Importance of the Meaning and Measurement of “Affordable” in the Affordable Care Act By Richard V. Burkhauser; Sean Lyons; Kosali I. Simon

  1. By: Robinson, Jonathan
    Abstract: In many developing countries, unexpected income shocks are common, formal insurance is absent, and informal inter-household risk-sharing networks are unable to provide full insurance. An important question is therefore whether risk sharing within the household is effective. I conducted a field experiment in Western Kenya in which 142 married couples were followed for approximately 8 weeks. Every week, each individual had a 50% chance of receiving an income shock equivalent to a few days' income. Since these shocks are, by definition, small relative to lifetime income, they should not affect intra-household bargaining power and should only affect a Pareto efficient household through the pooled budget constraint. However, I find that men increase their private consumption when they receive the shock but not when their wives do, a rejection of efficiency. I present evidence that such behavior is not specific to the experiment - both husbands and wives spend more on themselves in weeks in which their labor income is higher. The results suggest that insurance is limited even within the households in this sample.
    Keywords: risk sharing, intra-household, efficiency
    JEL: O20 O12
    Date: 2011–05–10
  2. By: Evren Ceritoglu
    Abstract: I analyse the Household Budget Surveys prepared by the Turkish Statistical Institute (TURKSTAT) to reveal the empirical importance of precautionary saving in Turkey. The most difficult aspect of the empirical analysis is the approximation of labour income risk as a proxy variable for future labour income uncertainty. Individual disposable income is interacted with the probability of being unemployed and with the probability of job-loss in the next period to generate the labour income risk variables. The econometric results support the precautionary saving hypothesis and labour income risk emerges as one of the main determinants of household saving decisions. Moreover, households implement alternative strategies to smooth their income streams such as holding a second job and increasing the number of income earners in the family. However, it is observed that they are still vulnerable against labour income risk, which underlines the need for a satisfactory social security system.
    Keywords: Precautionary Saving, Labour Income Risk, Unemployment Insurance
    JEL: D12 J65
    Date: 2011
  3. By: Richard V. Burkhauser; Sean Lyons; Kosali I. Simon
    Abstract: This working paper highlights the practical importance of two critical but under-explored assumptions behind existing estimates of the Affordable Care Act (ACA)’s potential impact on the mix of employees and families who may have employer-sponsored health insurance (ESI) in the future or may receive subsidies in the new health insurance exchanges. The first assumption is whether ACA’s affordable coverage rule will be interpreted to mean that employers must provide affordable single coverage or that they must provide affordable family coverage policies to workers with families to avoid paying a fine. The second assumption is how much employers and employees will cooperatively agree in the future to designing new compensation contracts to take advantage of the way “affordability” is determined. We show that depending on these assumptions, the ACA could lead to far more lower to moderate income families gaining access to affordable coverage through exchanges or, conversely, to far fewer of these families being covered by ESI, even if no employers drop their health insurance plans as a result of the new law. Using our stylized models, we find at one extreme that the share of private sector workers covered by ESI would fall by as much as 12.7 percentage points, relative to a case of full compliance with the law, if the ACA affordability coverage rule is interpreted to apply to family coverage and employees directly pay 100 percent of the cost of the ESI in premiums, with compensating higher wages making them no worse off. At the other extreme, we find no changes in the share of private sector workers covered by ESI along this margin if employee contribution shares do not change in the future and affordability is interpreted to refer to single coverage. What constitutes a realistic point between these two extremes depends on exactly how the affordability coverage rule will be interpreted and the degree that employers and employees will actually be able to make these adjustments because of labor market rigidities. This working paper’s contribution is to point out the importance of these hitherto unexplored factors for future consideration in research that uses more sophisticated micro simulation models. In our stylized model, most of the effect of the movement onto the subsidized exchanges occurs when employees directly pay less than 50 percent of the ESI family premium. We conclude by discussing the limitations of stylized calculations relative to full simulation models, and directions for future research.
    JEL: I0
    Date: 2011–08

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