nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒09‒05
seven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Health insurance and precautionary saving: a structural analysis By Hsu, Minchung
  2. The provision of public universal health insurance: impacts on private insurance, asset holdings and welfare By Minchung, Hsu; Junsang, Lee
  3. Spousal Labor Market Effects from Government Health Insurance: Evidence from a Veterans Affairs Expansion By Melissa A. Boyle; Joanna N. Lahey
  4. Does Ambiguity Aversion Raise the Optimal Level of Effort? A Two-Period Model By Loïc Berger
  5. The Nature of Risk Preferences: Evidence from Insurance Choices By Barseghyan, Levon; Molinari, Francesca; O'Donoghue, Ted; Teitelbaum, Joshua C.
  6. Unemployment Insurance in Developing Countries: The Case of Brazil By François Gerard; Gustavo Gonzaga
  7. Which Households Use Banks? Evidence from the Transition Economies By Thorsten Beck; Martin Brown

  1. By: Hsu, Minchung
    Abstract: Starr-McCluer (1996) documented an empirical finding that the US households covered by health insurance saved more than those without coverage, which is inconsistent with the standard consumption-saving theory. This study provides a structural analysis and suggests that institutional factors, in particular, a social insurance (safety net) system and an employment-based health insurance system, can account for this puzzling finding. A dynamic stochastic general equilibrium model is built that incorporates these two institutions with heterogeneous agents making decisions regarding saving, labor supply and health insurance endogenously when they are young. The model, in which agents save in a precautionary manner, can generate Starr-McCluer's empirical finding and it indicates that the empirical finding is not inconsistent with the standard theory of saving under uncertainty. Counterfactual experiments are performed to provide implications for empirical analyses and illustrate the danger of empirical work without a sound theoretical background.
    Keywords: Precautionary Savings; Social Insurance; Employment-based Health Insurance
    JEL: I38 E21
    Date: 2011
  2. By: Minchung, Hsu; Junsang, Lee
    Abstract: This paper aims to investigate impacts of public provision of universal health insurance (UHI) in an environment with household heterogeneity and financial market incompleteness. Various UHI polices with both distortionary (payroll-tax) and non-distortionary (lump-sum tax) financing methods are compared to address the trade-off between risk reduction and tax distortion as well as corresponding welfare implications. We undertake a dynamic equilibrium model with endogenous insurance choice and labor supply decisions to perform quantitative analyses. The results suggest that the UHI expenditure coverage rate would be too high in most OECD countries when the distortion effect is considered. We find a clear crowding out effect on asset holdings. Implications for private health insurance (PHI) purchases when UHI is introduced depend on the pricing and the design of coverage. We find the rich are sensitive to the price of PHI, and would prefer a supplemental plan when UHI is introduced.
    Keywords: universal health insurance; complementary/supplemental health insurance
    JEL: E62 H51
    Date: 2011
  3. By: Melissa A. Boyle (Department of Economics, College of the Holy Cross); Joanna N. Lahey (Department of Economics, Texas A&M University)
    Abstract: Although government expansion of health insurance to older workers leads to labor supply reductions for recipients, there may be spillover effects on the labor supply of affected spouses who are not covered by the programs. In the simplest model, health insurance on the job is paid for in terms of lower compensation on the job. Receiving health insurance exogenous to employment is akin to a positive income shock for the household, causing total household labor supply to drop. However, it is not clear within the household whether this decrease in labor supply will be borne by both spouses or by a specific spouse. We use a mid-1990s expansion of health insurance for U.S. veterans to provide evidence on the effects of expanding health insurance availability on the labor supply of spouses. Using data from the Current Population Survey, we employ a difference-in-differences strategy to compare the labor market behavior of the wives of older male veterans and non-veterans before and after the VA health benefits expansion to test the impact of public health insurance on these spouses. Our findings suggest that although household labor supply may decrease because of the income effect, the more flexible labor supply of wives allows the wife’s labor supply to increase, particularly for those with lower education levels.
    Keywords: Health Economics, Labor force participation
    JEL: I11 I18 H51 J26
    Date: 2011–08
  4. By: Loïc Berger
    Abstract: I consider two-period self-insurance and self-protection models in the presence of ambiguity that either affects the loss or the probabilities, and analyze the effect of ambiguity aversion. I show that in most common situations, ambiguity prudence is a sufficient condition to observe an increase in the level of effort. I proposes an interpretation of the model in the context of climate change, such that self-insurance and self-protection are respectively seen as adaptation and mitigation efforts a policymaker should provide to deal with an uncertain catastrophic event, and interpret the results obtained as an expression of the Precautionary Principle.
    Keywords: non-expected utility; self-protection; self-insurance; ambiguity prudence; precautionary principle
    JEL: D61 D81 D91 Q58
    Date: 2011–08
  5. By: Barseghyan, Levon (Cornell University); Molinari, Francesca (Cornell University); O'Donoghue, Ted (Cornell University); Teitelbaum, Joshua C. (Georgetown University)
    Abstract: We use data on households' deductible choices in auto and home insurance to estimate a structural model of risky choice that incorporates "standard" risk aversion (concave utility over final wealth), loss aversion, and nonlinear probability weighting. Our estimates indicate that nonlinear probability weighting plays the most important role in explaining the data. More specifically, we find that standard risk aversion is small, loss aversion is nonexistent, and nonlinear probability weighting is large. When we estimate restricted models, we find that nonlinear probability weighting alone can better explain the data than standard risk aversion alone, loss aversion alone, and standard risk aversion and loss aversion combined. Our main findings are robust to a variety of modeling assumptions.
    JEL: D01 D12 D81 G22
    Date: 2011–07
  6. By: François Gerard (UC Berkeley); Gustavo Gonzaga (Department of Economics PUC-Rio)
    Abstract: Few developing countries have adopted an Unemployment Insurance (UI) program but the list of countries considering its implementation is growing. Focusing on the Brazilian UI program and using administrative data covering the universe of formal employment, we provide empirical evidence documenting two relevant facts for the debate around the design of such program in countries characterized by a large informal sector and a lack of administrative and enforcement capacity. First, UI benefits strongly affects the timing of formal job finding for those workers able to find a formal job soon after job-loss. Second, those workers constitute a small share of the overall pool of UI beneficiaries, since most job-losers do not find a formal job rapidly. Therefore, offering UI is costly (most beneficiaries would exhaust their benefits for typical lengths of benefit duration) and UI benefits have little distortionary effect on the job-finding behavior of the average (formal) job-loser: they constitute pure income transfers for 3/4 of the potential beneficiaries. We further discuss implications of these 2 facts and highlight some interactions with job protection legislations (hiring costs), the main policy instrument used to protect workers from labor demand fluctuations in those countries.
    Date: 2011–08
  7. By: Thorsten Beck; Martin Brown
    Abstract: This paper uses survey data for 29,000 households from 29 transition economies to explore how the use of banking services is related to household characteristics, bank ownership structure and the development of the financial infrastructure. At the household level we find that the holding of a bank account or bank card increases with income, wealth and education in most countries and also find evidence for an urban-rural gap, as well as for a role of religion and social integration. Our results show that foreign bank ownership is associated with more bank accounts among high-wealth, high-income, and educated households. State ownership, on the other hand, does not induce financial inclusion of rural and poorer households. We find that higher deposit insurance coverage, better payment systems and creditor protection encourage the holding of bank accounts in particular by highincome and high-wealth households. All in all, our findings shed doubt on the ability of policy levers to broaden the financial system to disadvantaged groups.
    Keywords: Access to finance, Bank-ownership, Deposit insurance, Payment system, Creditor protection.
    JEL: C32 E52 F41
    Date: 2011–02

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