nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒08‒29
twelve papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Are Married Spouses Insured by their Partners’ Social Insurance? By Olsson, Martin; Skogman Thoursie, Peter
  2. Health and Mortality Delta: Assessing the Welfare Cost of Household Insurance Choice By Ralph Koijen; Stijn Van Nieuwerburgh; Motohiro Yogo
  3. Price Analysis, Risk Assessment, and Insurance for Organic Crops By Ariel Singerman; Chad E. Hart; Sergio H. Lence
  4. Optimal Unemployment Insurance in GE: a Robust Calibration Approach By Marco Cozzi
  5. Does Opportunistic Fraud in Automobile theft Insurance Fluctuate with the Business Cycle ? By Georges Dionne; Kili C. Wang
  6. Efficient Nash Equilibrium under Adverse Selection By Theodoros M. Diasakos; Kostas Koufopoulos
  7. Risk across Borders: A Study of the Potential of Microinsurance Products to Help Migrants Cope with Cross Border Risks By Annette Lovoi; Julia Brown; Barbara Magnoni; Rebecca Thornton
  8. On the Optimal Design of Disaster Insurance in a Federation By Timothy J. Goodspeed; Andrew Haughwout
  9. International portability of health-cost coverage : concepts and experience By Werding, Martin; McLennan, Stuart
  10. Diversity and Change: Asian American and Pacific Islander Workers By John Schmitt; Hye Jin Rho; Nicole Woo
  11. The Sharing of Macroeconomic Risk: Who Loses (and Gains) from Macroeconomic Shocks By Rudiger Ahrend; Jens Arnold; Charlotte Moeser
  12. Use of Banking Services in Emerging Markets -Household-Level Evidence (Replaces CentER DP 2010-092) By Beck, T.H.L.; Brown, M.

  1. By: Olsson, Martin (Research Institute of Industrial Economics (IFN)); Skogman Thoursie, Peter (Department of Economics)
    Abstract: We use a Swedish sickness insurance reform to show that among married couples a partner’s benefit level affects spousal labour supply. The spousal elasticity of sick days with respect to the partner’s benefit is estimated to be 0.4, which is about one-fourth of the own labor supply elasticity. It is argued the main part of this effect is an insurance income effect.
    Keywords: Spousal labor supply; Spill-over; Social insurance programs
    JEL: D10 J13 J22
    Date: 2011–06–22
  2. By: Ralph Koijen; Stijn Van Nieuwerburgh; Motohiro Yogo
    Abstract: We develop a pair of risk measures for the universe of health and longevity products that includes life insurance, annuities, and supplementary health insurance. Health delta measures the differential payoff that a policy delivers in poor health, while mortality delta measures the differential payoff that a policy delivers at death. Optimal portfolio choice simplifies to the problem of choosing a combination of health and longevity products that replicates the optimal exposure to health and mortality delta. For each household in the Health and Retirement Study, we calculate the health and mortality delta implied by its ownership of life insurance, annuities including private pensions, supplementary health insurance, and long-term care insurance. For the median household aged 51 to 58, the lifetime welfare cost of market incompleteness and suboptimal portfolio choice is 28 percent of total wealth.
    JEL: D14 D91 G11 G22 I10
    Date: 2011–08
  3. By: Ariel Singerman; Chad E. Hart; Sergio H. Lence
    Abstract: In recent years, the organic sector has grown steadily and significantly. However, little economic research has been performed on risk management in organic agriculture, likely because of the lack of available data. This lack of data may also be why the creation of the current crop insurance policy for organic farmers has been so ad hoc. The Agricultural Risk Protection Act of 2000 recognized organic farming as a “good farming practice,†making federal crop insurance coverage available for organic crops, and taking into account the idiosyncrasies of the organic production system. In addition to the production risks covered for conventional producers, organic farmers who sign up for coverage are compensated for production losses from damage due to insects, disease, and/or weeds. However, the incorporation of organic production into the crop insurance rating structure has been limited. Organic producers are charged an arbitrary 5% premium surcharge over conventional crop insurance. The actuarial fairness of this premium is, at least, questionable. In addition, in the case of crop failure, organic farmers receive compensation based on the prices of conventionally produced crops. Thus, price premiums that organic producers are able to obtain in the market are not compensated for under the current insurance policy structure. The Food, Conservation and Energy Act of 2008, which amends part of the Federal Crop Insurance Act, was written to investigate some of these claims, requiring the U.S. Department of Agriculture to examine the currently offered federal crop insurance coverage for organic crops as described in the organic policy provisions of the Act (Title XII). Such provisions established the need to review, among other things, the underwriting risk and loss experience of organic crops; determine whether significant, consistent, or systematic variations in loss history exist between organic and nonorganic production; and modify the coverage for organic crops in accordance with the results. Here we present the major findings of three analyses we performed on key elements of the insurance of organic crops—prices, yields, and revenue—in an effort to contribute to the design of an organic crop insurance policy that covers organic producers according to their idiosyncratic risks.
    Keywords: crop insurance, organic agriculture.
    Date: 2011–08
  4. By: Marco Cozzi (Queen’s University)
    Abstract: This paper implements a simple Bayesian approach to quantitatively study the Hansen and Imrohoroglu (1992) economy, a calibrated GE model with uninsurable employment risk, designed to assess the optimal replacement rate for a public Unemployment Insurance scheme. The results of this sensitivity analysis are consistent with the original findings, but with several caveats. One novel result in particular is that the distribution of the optimal UI is bimodal. Depending on the calibrated parameters, the optimal UI is in one of two regimes: a very generous scheme with high replacement ratios, where insurance is mainly provided by the UI scheme, or one with low replacement ratios, where insurance is mainly achieved through self-insurance. Even in the absence of moral hazard, it is never optimal to provide full insurance. Moreover, for many plausible parameters’ configurations, the welfare maximizing replacement rate does not decrease with the level of MH. The qualitative patterns and quantitative findings are not altered substantially when considering an enlarged labor force, which includes the marginally attached workers. Finally, the parameters representing the hours worked, the leisure share in the households’ consumption bundle, and the intertemporal elasticity of substitution have a first order impact on the average welfare. The determination of the optimal UI scheme depends heavily on them. This finding suggests that extra caution should be paid when calibrating these parameters in similar environments.
    Keywords: Calibration methods, Unemployment Risk, Optimal Unemployment Insurance, Heterogeneous Agents, Incomplete Markets, Computable General Equilibrium, Monte Carlo
    JEL: E21 D52 D58
    Date: 2011–08
  5. By: Georges Dionne; Kili C. Wang
    Abstract: We analyze the empirical relationship between opportunistic fraud and business cycle. We find that residual opportunistic fraud exists both in the contract with replacement cost endorsement and the contract with no-deductible endorsement in the Taiwan automobile theft insurance market. These results are consistent with previous literature on the relationship between fraud activity and insurance contracting. We also show that the severity of opportunistic fraud fluctuates in the opposite direction to the business cycle. Opportunistic fraud is stimulated during periods of recession and mitigated during periods of expansion.
    Keywords: Opportunistic fraud, replacement cost endorsement, no-deductible endorsement, automobile theft insurance, business cycle
    JEL: G22 G20 D80 D81
    Date: 2011
  6. By: Theodoros M. Diasakos; Kostas Koufopoulos
    Abstract: This paper revisits the problem of adverse selection in the insurance market of Rothschild and Stiglitz (1976). We propose a simple extension of the game-theoretic structure in Hellwig (1987) under which Nash-type strategic interaction between the informed customers and the uninformed firms results always in a particular separating equilibrium. The equilibrium allocation is unique and Pareto-efficient in the interim sense subject to incentive-compatibility and individual rationality. In fact, it is the unique neutral optimum in the sense of Myerson (1983).
    Keywords: Insurance Market; Adverse Selection; Incentive Efficiency
    JEL: D86
    Date: 2011
  7. By: Annette Lovoi; Julia Brown; Barbara Magnoni; Rebecca Thornton
    Abstract: This paper presents new evidence on migration and risk among Mexican migrants to the United States living in the New York City area. The paper examines the potential demand for formal risk mitigating mechanisms by studying some of the risks facing this community on both sides of the border, and provide greater understanding of their current informal risk management tools.
    Keywords: Financial Sector :: Remittances, Mexican Migrants, New York, Supply Side, Migrant-Linked Microinsurance models, Barriers to Access to Insurance, Products, Legal and Regulatory Barriers, Distribution Channels, Payments Channels, Demand Side, Transnationa, Microinsurance Products, remittances
    Date: 2010–09
  8. By: Timothy J. Goodspeed (Hunter College); Andrew Haughwout (Federal Reserve Bank of New York)
    Abstract: Recent experience with disasters and terrorist attacks in the US indicates that state and local governments rely on the federal sector for support after disasters occur. But these same governments invest in infrastructure designed to reduce vulnerability to natural and man-made hazards. We show that when the federal government is committed to full insurance against disasters, regions will have incentives to under-invest in ex-ante protective measures. We derive the structure of the optimal second-best insurance system when regional governments choose investment levels non-cooperatively and the central government cannot verify regional investment choices. For low probability disasters this will result in lower ex-post intergovernmental transfers (and hence less ex-post redistribution) and greater ex-ante investment. However, the second-best transfer scheme suffers from a time-inconsistency problem. Ex-post, the central government will be driven towards full insurance rather than the second-best grants, which results in a type of soft budget constraint problem. Sub-national governments will anticipate this and reduce their investment in protective infrastructure even further. The result is that the central government may be better off suffering the underinvestment that results with first-best transfers because investment is even lower under second-best transfers when the central government is unable to commit.
    Keywords: intergovernmental transfers, natural disasters, federalism, risk sharing
    JEL: H11 H7 R5
    Date: 2011
  9. By: Werding, Martin; McLennan, Stuart
    Abstract: Social insurance and other arrangements for funding health-care benefits often establish long-term relationships, effectively providing insurance against lasting changes in an individual's health status, engaging in burden-smoothing over the life cycle, and entailing additional elements of redistribution. International portability regarding this type of cover is, therefore, difficult to establish, but at the same time rather important both for the individuals affected and for the health funds involved in any instance of an international change in work place or residence. In this paper, full portability of health-cost cover is taken to mean that mobile individuals can, at a minimum, find comparable continuation of coverage under a different system and that this does not impose external costs or benefits on other members of the systems in the source and destination countries. Both of these aspects needs to be addressed in a meaningful portability framework for health systems, as lacking or incomplete portability may not only lead to significant losses in coverage for an individual who considers becoming mobile which may impede mobility that is otherwise likely to be beneficial. It may also lead to financial losses, or windfall gains, for sources of health-cost funding which can ultimately lead to a detrimental process of risk segmentation across national health systems. Against this background, even the most advanced sets of existing portability rules, such as those agreed upon multilaterally at the EU-level or laid down in bilateral agreements on social protection, appear to be untargeted, inconsistent and therefore potentially harmful, either for migrants or for health funds operated at both ends of the migration process, and hence for other individuals who are covered there.
    Keywords: Health Monitoring&Evaluation,Health Systems Development&Reform,Health Economics&Finance,Health Law,Insurance Law
    Date: 2011–07–01
  10. By: John Schmitt; Hye Jin Rho; Nicole Woo
    Abstract: About 7.4 million Asian Americans and Pacific Islanders (AAPI) work in the United States, making up 5.3 percent of the total U.S. workforce. About 7.1 million of these AAPI workers are Asian Americans; about 300,000 are Pacific Islanders. The AAPI workforce is almost 20 times larger today than it was in 1960. Meanwhile, the share of AAPIs in the total workforce has increased about tenfold over the same period. Three broad themes emerge from our analysis of the data: The first is that AAPI workers are highly diverse. The second theme is that AAPI workers face many challenges in the labor market. The final theme is that the trends in the economic circumstances of AAPI workers have closely mirrored those of the broader workforce.
    Keywords: unions, wages, benefits, pension, health insurance, asian
    JEL: J J1 J3 J31 J32 J41 J5 J58 J6 J68 J88
    Date: 2011–07
  11. By: Rudiger Ahrend; Jens Arnold; Charlotte Moeser
    Abstract: This paper addresses the often neglected question of how macroeconomic risk is shared across and within economies, and identifies reforms that could contribute towards achieving more desirable risksharing outcomes. For risk-sharing across countries, the paper discusses possibilities for international insurance as well as shock-spreading and risk-mitigating policies. Within countries, it assesses the possibilities for individuals to protect their wealth, labour and capital income against various forms of macroeconomic risk and discusses the desirable boundaries between private and government-sponsored risk-sharing institutions. The paper then presents new empirical and model-based evidence about how the short-term impact of selected macroeconomic shocks (including financial crises) is shared across different groups of agents, and analyses how such distributional effects are shaped by differences in institutions. For example, individuals on low incomes, and especially young people, seem in general to lose most from adverse macroeconomic shocks. Also, it appears that across countries two broad types of institutions can be identified that facilitate risk sharing between high and low income earners, namely “social protection” and “reallocation-facilitating” institutions. Based on countries’ reliance on these types of institutions, four broad “models” of risk sharing are identified across the OECD and the BRIICS.<P>Le partage du risque macroéconomique : Les perdants (et gagnants) des chocs macroéconomiques<BR>L’article analyse comment les risques macroéconomiques sont répartis au niveau international et individuel. Il propose des réformes qui pourraient contribuer à une meilleure redistribution de ces risques. Premièrement, au niveau international, le papier analyse l’opportunité des dispositifs d’assurance ainsi que des politiques de partage et de réduction des risques macroéconomiques. Deuxièmement, au niveau individuel, l’article évalue comment les individus peuvent protéger leurs patrimoines et revenus du travail et du capital à l’encontre de différents chocs macroéconomiques. Il analyse les limites et rôles souhaitables des dispositifs privés et publics de répartition des risques. Enfin, l’article modélise les effets de court terme de certains chocs macroéconomiques – dont les crises financières – sur différents groupes d’individus et propose une nouvelle analyse empirique de l’impact des institutions sur la répartition des risques macroéconomiques. Les bas revenus, et en particulier les jeunes, semblent les groupes les plus affectés par les chocs macroéconomiques. Les institutions de protection sociale et elles favorisant les transitions apparaissent contribuer à la redistribution des risques entre niveau de revenus. Cette analyse permet d’identifier quatre grands modèles de répartition des risques parmi les pays de l’OCDE et du BRIICS.
    Keywords: redistribution, institutions, wealth, insurance, risk sharing, income, DSGE, macroeconomic shock, financial crises, redistribution, institutions, assurance, revenus, chocs macroéconomiques, répartition des risques, modèle d’équilibre général à dynamique stochastique
    JEL: D31 D63 E60 G22 H11 I38
    Date: 2011–07–01
  12. By: Beck, T.H.L.; Brown, M. (Tilburg University, Center for Economic Research)
    Abstract: This paper uses survey data for 60,000 households from 29 transition economies in 2006 and 2010 to explore how the use of banking services is related to household characteristics, as well as to bank ownership, deposit insurance and creditor protection. At the household level we find that the holding of a bank account, a bank card, or a mortgage increases with income and education in most countries and find evidence for an urban-rural gap. The use of banking services is also related to the religion and social integration of a household as well as the gender of the household head. Using the within-country variation between 2006 and 2010, we find that the privatization of state-owned banks and an increase in market share of foreign banks are associated with a stronger use of banking services. Foreign bank ownership is also associated with a higher use of bank services among highincome households and households with formal employment. State ownership, by contrast is hardly associated with more outreach to poorer households. More generous deposit insurance and stronger creditor rights also foster the use of banking services among the urban, rich, better educated and formally employed.
    Keywords: Access to finance;Household finance;Bank-ownership;Deposit insurance;Creditor protection.
    JEL: G2 G18 O16 P34
    Date: 2011

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