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on Insurance Economics |
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Issue of 2011‒10‒15
fifteen papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | di Falco, Salvatore; Capitanio, Fabian; Adinolfi, Felice |
| Keywords: | Risk and Uncertainty, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114325&r=ias |
| By: | Parsons, Donald O. (George Washington University) |
| Abstract: | Job displacement insurance typically includes both unemployment benefits and lump-sum severance pay, and each has provoked policy concerns. Unemployment insurance concerns have centered on distorted job search/offer acceptance decisions by the worker, severance-induced firing cost concerns on excessive labor hoarding by firms. A single period private contracting model is used to investigate the interaction of these two seemingly distinct issues. Viewed singly, familiar results emerge. The absence of separation benefits of any kind leads to excessive labor hoarding as a primitive form of earnings insurance. In a limited information environment, the distribution of job displacement insurance between the two benefit types becomes important. Unemployment insurance benefits must be limited (relative to first-best levels) and severance pay made more generous. Firing cost considerations are less familiar. Because the firm wants to provide benefits, they cannot be "contracted around." Although formally driven by the sum of (unsubsidized) severance pay and expected unemployment benefits, the second-best firing cost program limits severance pay only. Together the two constraints create an unpromising contracting environment. The firing cost constraint is the more easily relaxed by government action – subsidies of sufficient size to one or another of the separation programs will work. Offer acceptance requires restrictions on leisure (workfare). Unfortunately, if first-best benefits are mandated, efficiency requires that both be eased. |
| Keywords: | job displacement, unemployment insurance, severance pay, moral hazard, firing costs |
| JEL: | J65 J41 J33 J08 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6003&r=ias |
| By: | D. Fabbri; C. Monfardini |
| Abstract: | We investigate whether people enrolled into voluntary health insurance (VHI) substitute public consumption with private (opt out) or just enlarge their private consumption, without reducing reliance upon public provisions (top up). We study the case of Italy, where a mixed insurance system is in place. To this purpose, we specify a joint model for public and private specialist visits counts, and allow for different degrees of endogenous supplementary insurance coverage, looking at the insurance coverage as driven by a trinomial choice process. We disentangle the effect of income and wealth by going through two channels: the direct impact on the demand for healthcare and that due to selection into VHI. We find evidence of opting out: richer and wealthier individuals consume more private services and concomitantly reduce those services publicly provided through selection into for-profit VHI. These results imply that the market for VHI eases the redistribution from high income (doubly insured) individuals to low income (not doubly insured) ones operated by the Italian National Health Service (NHS). Accounting for VHI endogeneity in the joint model of the two counts is crucial to this conclusion. |
| JEL: | C34 C35 D12 H44 I11 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp780&r=ias |
| By: | Alice Zawacki |
| Abstract: | The Medical Expenditure Panel Survey-Insurance Component (MEPS-IC) is conducted to provide nationally representative estimates on employer sponsored health insurance. MEPSIC data are collected from private sector employers, as well as state and local governments. While similar information is gathered from these two sectors, differences in the survey process exist. The goal of this paper is to provide details on the public sector including types of state and local government employers, sample design, general information on the data collected in the MEPS-IC, and additional sources of information. |
| Keywords: | employer sponsored insurance; state and local governments; Medical Expenditure Panel Survey-Insurance Component; public sector |
| JEL: | I1 J3 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:11-27&r=ias |
| By: | Severini, Simone; Cortignani, Raffaele |
| Abstract: | European farmers face increasing income uncertainty and the debate is growing on the role of insurance schemes and of public support in this field. This debate is further stimulated by the perspective of introducing instruments to cope with risk also in the Common Agricultural Policy. Therefore, there is a need for empirical analysis and tools aimed at providing empirical evidences on this subject. This paper applies a PMP modelling approach that takes into explicit consideration risk aversion behaviour to test the possibility to use it to assess the implications of participating in a insurance scheme. This is done by introducing a revenue insurance scheme into a model developed on a small group of crop farms in Italy. In particular, a quadratic mix integer programming approach has been developed in order to model the choice of participating or not in the proposed insurance scheme. The model has been than used to conduct simulations considering changes in the level of the insurance premium. The paper tries to assess the soundness of the proposed approach and to identify its limitations. The obtained results suggest that this could be a useful tool to investigate the impact of participating in insurance schemes on production patterns and farm profitability and the role of public support in this field. |
| Keywords: | insurance schemes, PMP, farmersâ participation, risk aversion, non-linear mix-integer programming, Farm Management, Risk and Uncertainty, Q12, C61, Q18, |
| Date: | 2011–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:116001&r=ias |
| By: | Böheim, René (University of Linz); Leoni, Thomas (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 firm' 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: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6005&r=ias |
| By: | Toshihiro Ihori (The University of Tokyo); Ryuta Ray Kato (International University of Japan); Masumi Kawade (Nihon University); Shun-ichiro Bessho (Hitotsubashi University) |
| Abstract: | This paper evaluates the drastic reforms of Japanese public health insurance initiated in 2006. We employ a computable general equilibrium framework to numerically examine the reforms for an aging Japan in the dynamic context of overlapping generations. Our simulation produced the following results: First, an increase in the co-payment rate, a prominent feature of the 2006 reform, would promote economic growth and welfare by encouraging private saving. Second, the ex-post moral hazard behavior following the increase in co-payment rates, however, reduces economic growth. Third, Japanfs trend of increasing the future public health insurance benefits can mainly be explained by its aging population, and increasing the co-payment rate does little to reduce future payments of public health insurance benefits. Fourth, the effect on future economic burdens of reducing medical costs through efficiencies in public health insurance, emphasis on preventive medical care, or technological progress in the medical field is small. Finally, a policy of maintaining public health insurance at a fixed percentage of GDP will require reducing public health insurance benefits, perhaps up to 45% by 2050. Such a policy also reduces economic growth until approximately 2035. Our simulation indicates that the reform does not significantly reduce future public health insurance benefits, but it can enhance economic growth and welfare by encouraging private saving. |
| Keywords: | public health insurance; Japan; national medical expenditure; economic growth; aging population; dynamic CGE model |
| JEL: | C68 D58 E17 E62 H51 H55 H62 I18 O40 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:iuj:wpaper:ems_2011_17&r=ias |
| By: | Chakir, Raja; Hardelin, Julien |
| Abstract: | This paper investigates the determinants of rapeseed hail insurance and pesticide use decisions using individual panel data set of French farms covering the period from 1993 to 2004. Economic theory suggests that insurance and prevention decisions are not independent due to risk reduction and/or moral hazard effects. Statistical tests show that the pesticide use and hail insurance demand are endogenous to each other. An econometric model involving two simultaneous equations with a mixed censored/continuous dependent variables is then estimated. Estimation results show that rapeseed insurance demand has a positive and significant effect on pesticide use and vice versa. Insurance demand is also positively influenced by the yieldâs coefficient of variation and the loss ratio, and negatively influenced by proxies for wealth (including CAP subsidies) and activity diversification. |
| Keywords: | Risk and Uncertainty, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114312&r=ias |
| By: | Lorenzo Cappellari (DISCE, Università Cattolica) |
| Abstract: | We investigate the relationship between life-cycle wages and flexicurity in Denmark. We separate permanent from transitory wages and characterise flexicurity using membership of unemployment insurance funds. We find that flexicurity is associated with lower wage growth heterogeneity over the life-cycle and greater wage instability, changing the nature of wage inequality from permanent to transitory. While we are in general unable to formally test for moral hazard against adverse selection into unemployment insurance membership, robustness checks suggest that moral hazard is the relevant interpretation. |
| Keywords: | Unemployment insurance, wage dynamics, wage inequality, wage instability. |
| JEL: | J31 J65 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie4:ieil0064&r=ias |
| By: | Banerjee, Chirantan; Berg, Ernst |
| Abstract: | Index-based weather insurances are innovative tools for mitigating weather risks in agriculture. Several donor agencies and development organisations are investing substantially to propagate these programmes in developing countries. However, often due to high basis risks, these products mitigate risk only through diversification effect, thereby defeating the intended purpose. Besides, they send confusing messages to the farmers regarding the very concept of insurance. Therefore, this paper investigates the efficiency of two such index-based weather insurances in Philippines, designed to mitigate rice yield loss caused by strong typhoon winds. The insurance products are designed assuming negative linear correlation between wind speed and rice yield. To verify, we used satellite data and GIS tools to tabulate typhoon wind speeds, concurrent crop stage and the subsequent rice yield in five provinces which have both the programmes. Regression analyses and Ramsey RESET tests confirm that rice yield loss is not a function of incident typhoon wind speed, irrespective of the crop stage. Basis risk estimations, based on minimum variance hedging ratio for a risk averse expected utility maximising consumer show that the products entail basis risks of the order of 99%. Typhoons damage all crops, but wind indexed insurance is inadequate when the insured crop has low head weight and is agile like rice, since wind onslaughts do not determine the degree of yield loss. Notably, a thorough burn analysis for basis risk is a necessity before investing time and money implementing index-based weather insurance schemes as a tool for poverty alleviation. |
| Keywords: | Basis risk, Typhoon, Index-based Insurance, Crop Production/Industries, Risk and Uncertainty, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114240&r=ias |
| By: | Cristina Ottaviani (Università degli Studi di Roma - La Sapienza); Daniela Vandone (University of Milan) |
| Abstract: | In this study we empirically estimated the role played by attitudes toward risk in insurance decision-making. To this end, we used the Iowa Gambling Task coupled with skin conductance recording, a validated experimental task of decision making under ambiguity which provides two dimensions of risk taking: the performance at the risk, as a measure of risk propensity, and the functioning of the somatic marker, as a measure of risk perception, that is the ability of the individual to “feel” the risk, independently of his/her risk attitude. The sample was made by 445 households and demographic-socio economical profiles were also obtained. Aside from confirming the role played by socio-economic explanatory variables, such as income level and marital status, on insurance purchase, results from the probit model showed the relevance of psychophysiological data: the likelihood of insurance demand is higher for people who are more risk seeking (worse performance at the task) but are adaptively able to feel the risk (anticipatory skin conductance responses to disadvantageous decks). Results are discussed in light of the need of interdisciplinary research. |
| Keywords: | insurance demand, decision making, ambiguity, risk taking, Iowa gambling task, |
| Date: | 2011–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:bep:unimip:unimi-1108&r=ias |
| By: | Finger, Robert; Lehmann, Niklaus |
| Abstract: | We analyze determinants of hail insurance use of Swiss farmers, covering the period 1990-2009 using FADN panel data. Mixed effect logistic regression models are estimated to identify the most important farm and farmer characteristics that determine insurance use. In addition, information on local hail risk is taken into account in these models. It shows that larger farms, with specialization on crop production, and with larger local hail risks are more likely to adopt the hail insurance. Moreover, insurance users are usually older and better educated. Since the early 1990s, Swiss agricultural policy has reduced price support and introduced general and ecological direct payments. This has led to a much higher importance of direct payments for farmersâ incomes. We find that this development has contributed to decreasing hail adoption rates in Switzerland in the considered period, due to the insurance and wealth effects of direct payments. Our results indicate that the larger the share of direct payments for total farm revenue, the more subsidies would be required to induce hail insurance adoption. Thus, agricultural policy should explicitly consider this interdependency. |
| Keywords: | Risk and Uncertainty, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114355&r=ias |
| By: | Meuwissen, Miranda P.M.; Van Asseldonk, Marcel A.P.M.; Pietola, Kyosti; Hardaker, J. Brian; Huirne, Ruud B.M. |
| Abstract: | The ecosystem and the economic subsystem are interlinked. In fact, it is the overconsumption of scarce resources or the overproduction of bad outputs at economic system level that causes a great part of the imbalances at the ecosystem level. Some imbalances do not originate at the economic system level, but are due to external factors. Given the possibility of external shocks, respecting static sustainability thresholds is not a guarantee for system sustainability. In a dynamic setting, the concept of resilience is therefore helpful. In this paper we show how this concept can complement the traditional efficiency approach to come to a sustainable value creating economic system. |
| Keywords: | Income volatility, Income insurance, Expert elicitation, Price insurance, Risk and Uncertainty, |
| Date: | 2011–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114649&r=ias |
| By: | David Bardey; Fernando Jaramillo |
| Abstract: | ABSTRACT: We analyze whether the introduction of unemployment insurance (UI hereafter) benefits in developing countries would reduce the effort made by unemployed to secure a new job in the formal sector. We show that one shot UI benefits unambiguously increase the effort to secure a new job in the formal sector. The relative strength of income/substitution effects only determine how leisure and informal activities are affected. Consequently, our (partial equilibrium) analysis reveals that short term UI benefits in developing countries do not reduce incentives to secure a new formal job and therefore cannot be interpreted as a subsidy to the informal sector. |
| Date: | 2011–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:col:000092:009015&r=ias |
| By: | Bobojonov, Ihtiyor; Sommer, Rolf |
| Abstract: | The paper compares the risk coping potential of insurances that are based on indices derived from weather (rainfall and temperature) data as well as from crop model and remote sensing analyses. Corresponding indices were computed for the case of wheat production in the Aleppo region of northern Syria, representative for agricultural production systems in many developing countries. The results demonstrate that weather derivatives such as the rainfall sum index (RSI) and the rainfall deficit index (RDI) have a very good potential for coping with risk in semiarid areas. Crop simulation model index (CSI) on the other hand could serve as an alternative to RSI and RDI when historical farm yield data is not available or not reliable. In such cases we simulated historical yields using the CropSyst cropping system simulation model. Remote sensing data could be used to establish index insurances where weather stations are sparsely located and (daily time step) weather data thus not available. The study analyzes two indexes estimated from the Normalized Differential Vegetation Index (NDVI): (1.) the farm level NDVI (FNDVI) and (2.) the area level NDVI (ANDVI). FNDVI may have a very high potential for securing farm revenues, but may be prone to moral hazard since farm management changes and subsequent gains or losses in crop production are directly revealed by the NDVI when high resolution images are used. Therefore, we recommend ANDVI for developing countries since the index is estimated for the whole agricultural zone similar to traditional area-yield insurances. |
| Keywords: | risk management, index insurance, alternative index, CropSyst, NDVI, Risk and Uncertainty, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114256&r=ias |