nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒11‒14
seven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The demand for social insurance: does culture matter? By Beatrix Brügger; Rafael Lalive; Andreas Steinhauer; Josef Zweimüller
  2. Target-driven investing: Optimal investment strategies in defined contribution pension plans under loss aversion By Blake, David; Wright, Douglas; Zhang, Yumeng
  3. A report to the Federal Insurance Office By Tatom, John
  4. Long-Run Earnings Volatility and Health Insurance Coverage: Evidence from the SIPP Gold Standard File By Matthew Rutledge
  5. Risk Sharing through Capital Gains By Balli, Faruk; Kalemli-Ozcan, Sebnem; Sørensen, Bent E
  6. "Resolving the Eurozone Crisis--Without Debt Buyouts, National Guarantees, Mutual Insurance, or Fiscal Transfers" By Stuart Holland
  7. The Self-insurance Role of International Reserves and the 2008-2010 Crisis By Antonio Francisco A. Silva Jr

  1. By: Beatrix Brügger; Rafael Lalive; Andreas Steinhauer; Josef Zweimüller
    Abstract: Can different social groups develop different demands for social insurance of risks to health and work? We study this issue across language groups in Switzerland. Language defines social groups and Swiss language groups are separated by a clear geographic border. Actual levels of social insurance are identical on either side of the within state segments of the language border. We can therefore study the role of culture in shaping the demand for social insurance. Specifically, we contrast at the language border actual voting decisions on country-wide changes to social insurance programs. Key results indicate substantially higher support for expansions of social insurance among residents of Latin-speaking (i.e. French, Italian, or Romansh) border municipalities compared to their German-speaking neighbors in adjacent municipalities. We consider three possible explanations for this finding: informal insurance, ideology, and the media. We find that informal insurance does not vary enough to explain stark differences in social insurance. However, differences in ideology and segmented media markets are potentially important explanatory factors.
    Keywords: Culture, language, preferences for social insurance, spatial regression discontinuity
    JEL: J21 J64 Z10
    Date: 2011–10
  2. By: Blake, David; Wright, Douglas; Zhang, Yumeng
    Abstract: Assuming loss aversion, stochastic investment and labour income processes, and a path-dependent target fund, we show that the optimal investment strategy for defined contribution pension plan members is a target-driven 'threshold' strategy. With this strategy, the equity allocation is increased if the accumulating fund is below target and decreased if it is above. However, if the fund is sufficiently above target, the optimal investment strategy switches discretely to 'portfolio insurance'. We show that under loss aversion, the risk of failing to attain the target replacement ratio is significantly reduced compared with target-driven strategies derived from maximising expected utility.
    Keywords: Defined Contribution Pension Plan; Investment Strategy; Loss Aversion; Target Replacement Ratio; Threshold Strategy; Portfolio Insurance; Dynamic Programming
    JEL: G11 C63 G23 D91
    Date: 2011–09
  3. By: Tatom, John
    Abstract: Perhaps the most important report that the FIO will ever make is the report on the system of state-based insurance regulation. By the end of January 2012, the FIO Director is to submit a report to Congress recommending changes to modernize and improve insurance regulation in the United States. This essentially means the FIO is being asked to propose its own mission and scope of operations and to lay out a road map to guide public policy decision-making moving forward in a major part of the financial services sector. Our focus here is on that report, but the discussion will also be useful in preparing other reports to the Congress mandated by DFA. This paper provides analysis and recommendations of NFI on the issues that the Congress has mandated for discussion in the FIO report to Congress early next year.
    Keywords: Dodd-Frank Act; Federal Insurance Office; insurance regulation
    JEL: G22 G18
    Date: 2011–08–03
  4. By: Matthew Rutledge
    Abstract: Despite the notable increase in earnings volatility and the attention paid to the growing ranks of the uninsured, the relationship between career earnings and short- and mediumrun health insurance status has been ignored due to a lack of data. I use a new dataset, the SIPP Gold Standard File, that merges health insurance status and demographics from the Survey of Income and Program Participation with career earnings records from the Social Security Administration (SSA) and the Internal Revenue Service (IRS) to examine the relationship between long-run family earnings volatility and health insurance coverage. I find that more volatile career earnings are associated with an increased probability of experiencing an uninsured episode, with larger effects for men, young workers, and the unmarried. These findings are consistent with the “scarring” literature, and suggest the importance of safety-net measures for job losses and health insurance coverage.
    Date: 2011–10
  5. By: Balli, Faruk; Kalemli-Ozcan, Sebnem; Sørensen, Bent E
    Abstract: We estimate channels of international risk sharing between European Monetary Union (EMU), European Union, and other OECD countries 1992-2007. We focus on risk sharing through savings, factor income flows, and capital gains. Risk sharing through factor income and capital gains was close to zero before 1999 but has increased since then. Risk sharing from capital gains, at about 6 percent, is higher than risk sharing from factor income flows for European Union countries and OECD countries. Risk sharing from factor income flows is higher for Euro zone countries, at 14 percent, reflecting increased international asset and liability holdings in the Euro area.
    Keywords: capital markets; income insurance; international financial integration
    JEL: F21 F36
    Date: 2011–11
  6. By: Stuart Holland
    Abstract: One of the reasons for the failure of Europe's governing bodies to resolve the eurozone crisis is resistance to debt buyouts, national guarantees, mutual insurance, and fiscal transfers between member-states. Stuart Holland argues that none of these are necessary to convert a share of national bonds to Union bonds or for net issues of eurobonds--two alternative approaches to the debt crisis that would offset default risk and, by securing the euro as a reserve currency, contribute to more balanced global growth.
    Date: 2011–11
  7. By: Antonio Francisco A. Silva Jr
    Abstract: There is no standard rule for the definition of an “optimal level” of international reserves and several assumptions underlie the rationale behind holding reserves. There are various theoretical approaches, but no standard for the evaluation of the performance of “optimal level” models, and their parameters are difficult to estimate. The literature suggests that the benefits of holding reserves are high, but the accumulation of reserves is a costly strategy. In fact, in a world of high liquidity and free capital flow, establishing an adequate level of international reserves is still a puzzle. The strategy of accumulating international reserves is evaluated here using data from the 2008-2010 crisis and it is shown that countries with higher international reserve levels had less adjustment costs between 2008 and 2010. The cost-benefit relationship of holding reserves in the 2008-2010 crisis is also discussed based on a sample with 71 countries.
    Date: 2011–11

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