nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒10‒09
four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The context effect in the choice of earthquake insurance contracts in Japan By SATO, Motohiro; SAITO, Makoto
  2. Firms’ moral hazard in sickness absences By René Böheim; Thomas Leoni
  3. Coping with unpleasant surprises in a complex world: Is rational choice possible in a world with positive information costs? By Congleton, Roger D.
  4. Sinking, Swimming, or Learning to Swim in Medicare Part D By Ketcham, Jonathan D.; Lucarelli, Claudio; Miravete, Eugenio J; Roebuck, M Christopher

  1. By: SATO, Motohiro; SAITO, Makoto
    Abstract: In this paper, we investigate the context effect in the choice of public and private earthquake insurance contracts using data from a questionnaire survey completed by an identical set of approximately 2,000 households in 2008 and again in 2009. According to the 2008 survey, the public earthquake insurance (PEI) was not popular among those who felt that the premiums were too high. On the other hand, the 2009 survey demonstrates that the choice of earthquake insurance changed substantially when a hypothetical private earthquake insurance contract, much more expensive than the PEI, was added to a choice menu. In particular, those who had initially felt that PEI was too expensive tended to find it less expensive relative to private insurance, and worth purchasing. A crucial advantage of the above choice architecture is that including additional options helps private insurance companies to develop market activities.
    Keywords: earthquake insurance, public insurance, context effects
    JEL: C91 D14 G22 M31
    Date: 2011–09
  2. By: René Böheim (Department of Economics, Johannes Kepler University Linz, Austria); Thomas Leoni (Österreichisches Institut für Wirtschaftsforschung (WIFO) (Austrian Institute of Economic Research))
    Abstract: Sick workers in many countries receive sick pay during their illness- related absences from the workplace. In several countries, the social security system insures firms against their workers’ sickness absences. However, this insurance may create moral hazard problems for firms, leading to the inefficient monitoring of absences or to an underinvestment in their prevention. In the present paper, we investigate firms’ moral hazard problems in sickness absences by analyzing a legislative change that took place in Austria in 2000. In September 2000, an insurance fund that refunded firms for the costs of their blue-collar workers’ sickness absences was abolished (firms did not receive a similar refund for their white-collar workers’ sickness absences). Before that time, small firms were fully refunded for the wage costs of blue- collar workers’ sickness absences. Large firms, by contrast, were refunded only 70% of the wages paid to sick blue-collar workers. Using a difference-in-differences-in-differences approach, we estimate the causal impact of refunding firms for their workers’ sickness absences. Our results indicate that the incidences of blue-collar workers’ sicknesses dropped by approximately 8% and sickness absences were almost 11% shorter following the removal of the refund. Several robustness checks confirm these results.
    Keywords: absenteeism, moral hazard, sickness insurance
    JEL: J22 I38
    Date: 2011–09
  3. By: Congleton, Roger D.
    Abstract: This paper provides a rational choice-based analysis of the causes and consequences of surprise events. The paper argues that ignorance may be rational, but nonetheless produce systematic mistakes, inconsistent behavior, and both pleasant and unpleasant surprises. If ignorance and unpleasant surprises are commonplace and relevant for individual and group decisionmaking, we should observe standing institutions for dealing with them - and we do. Insofar as surprises are consistent with rational choice models, but left outside most models, it can be argued that these methodological choices mistakenly limit the scope of rational choicebased research. --
    Keywords: Ignorance,Rational Ignorance,Natural Ignorance,Bounded Rationality,Rational Choice,Biased Expectations,Crisis Management,Social Insurance,Bailouts,Economics of Information
    JEL: D8 D6
    Date: 2011
  4. By: Ketcham, Jonathan D.; Lucarelli, Claudio; Miravete, Eugenio J; Roebuck, M Christopher
    Abstract: Under Medicare Part D, senior citizens choose prescription drug insurance offred by numerous private insurers. We examine non-poor enrollees' actions in 2006 and 2007 using panel data. Our sample reduced overspending by $298 on average, with gains by 81% of them. The greatest improvements were by those who overspent most in 2006 and by those who switched plans. Decisions to switch depended on individuals' overspending in 2006 and on individual-specific effects of changes in their current plans. The oldest consumers and those initiating medications for Alzheimer's disease improved by more than average, suggesting that real-world institutions help overcome cognitive limitations.
    Keywords: Insurance Plan Switching; Overspending; Prescription Drugs
    JEL: D01 D8 H51 I10 I11 I18
    Date: 2011–09

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