nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒12‒13
fourteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Impact of the Macroeconomy on Health Insurance Coverage: Evidence from the Great Recession By Cawley, John; Moriya, Asako S.; Simon, Kosali
  2. Effect of universal health coverage on marriage, cohabitation and labor force participation By Azuara, Oliver
  3. The Spirit of the Welfare State? Adaptation in the Demand for Social Insurance By Martin Ljunge
  4. Econometric Measures of Connectedness and Systemic Risk in the Finance and Insurance Sectors By Monica Billio; Mila Getmansky; Andrew W. Lo; Loriana Pelizzon
  5. Risk absorption by the state: when is it good public policy ? By Anginer, Deniz; de la Torre, Augusto; Ize, Alain
  6. Aggregate Implications of Heterogeneous Households in a Sticky-Price Model By Jae Won Lee
  7. 21st Century Welfare Provision is more than the "social insurance state": A reply to Paul Pierson By Hemerijck, Anton
  8. Price search, consumption inequality, and expenditure inequality over the life cycle By Arslan, Yavuz; Taskin, Temel
  9. Credit and liquidity risks in euro area sovereign yield curves By Monfort, A.; Renne, J-P.
  10. From Shame to Game in One Hundred Years: The Rise in Premarital Sex and its Destigmitization By Fernández-Villaverde, Jesús; Greenwood, Jeremy; Guner, Nezih
  11. Optimal capital stock and financing constraints By Saltari, Enrico; Giuseppe, Travaglini
  12. On international risk sharing and financial globalization: some gloomy evidence By Eleonora Pierucci; Luigi Ventura
  13. Organizational Capital and Optimal Ramsey Taxation By Alok Johri; Bidyut Kumar Talukdar
  14. Foreign Output Shocks and Monetary Policy Regimes in Small Open Economies: A DSGE Evaluation of East Asia By Joseph D. ALBA; Wai–Mun CHIA; Donghyun PARK

  1. By: Cawley, John (Cornell University); Moriya, Asako S. (Carnegie Mellon University); Simon, Kosali (Indiana University)
    Abstract: This paper investigates the impact of the macroeconomy on the health insurance coverage of Americans using panel data from the Survey of Income and Program Participation (SIPP) for 2004-2010, a period that includes the Great Recession of 2007-09. We find that a one percentage point increase in the state unemployment rate is associated with a 1.67 percentage point (2.12%) reduction in the probability that men have health insurance; this effect is strongest among college-educated, white, and older (50-64 year old) men. We estimate that 9.3 million Americans, the vast majority of whom were adult men, lost health insurance due to a higher unemployment rate alone during the 2007-09 recession. We conclude with a discussion of how components of recent health care reform may influence this relationship in the future.
    Keywords: health insurance, Medicaid, SCHIP, recession, unemployment
    JEL: I10 J3 J6 E32
    Date: 2011–11
  2. By: Azuara, Oliver
    Abstract: This paper examines the impact of universal health coverage on cohabitation, marriage, and labor force participation. Economic gains from marriage when non-labor income increases among partners. I use the expansion of non-contributory health insurance in Mexico to test this. This insurance scheme, called Seguro Popular (SP), provides a minimum set of health benefits to the population not covered by formal social security. The rollout of SP started in 2002 across municipalities. This variation makes possible examine the effect of health insurance on marital status among workers. The analysis of this paper shows that non-contributory health insurance coverage has a significant negative effect on the probability of marriage among poor and low educated males and females, and a positive effect on the probability of cohabitation. SP, however, has no effect on labor force participation.
    Keywords: Marriage; cohabitation; health insurance; Seguro Popular; Oportunidades; Mexico
    JEL: J1 J0 I1
    Date: 2011–06–01
  3. By: Martin Ljunge (Department of Economics)
    Abstract: Young generations demand substantially more social insurance than older generations, although program rules have been constant for decades. I postulate a model where the utility of taking up social insurance benefits depends on the past behavior of older generations. The model is estimated with individual panel data. The intertemporal mechanism estimated can account for half of the younger generations’ higher demand for social insurance benefits. The influence of older generations’ behavior remains when instrumenting using mortality rates, which makes a compelling case for a causal intertemporal influence on individual demand.
    Keywords: social insurance; adaptation; role models
    JEL: H31 I18 J22 Z13
    Date: 2011–11–16
  4. By: Monica Billio (Department of Economics, University Ca’ Foscari of Venice); Mila Getmansky (Isenberg School of Management, University of Massachusetts); Andrew W. Lo (MIT Sloan School of Management); Loriana Pelizzon (Department of Economics, University Ca’ Foscari of Venice)
    Abstract: We propose several econometric measures of connectedness based on principal-components analysis and Granger-causality networks, and apply them to the monthly returns of hedge funds, banks, broker/dealers, and insurance companies. We find that all four sectors have become highly interrelated over the past decade, likely increasing the level of systemic risk in the finance and insurance industries through a complex and time-varying network of relationships. These measures can also identify and quantify financial crisis periods, and seem to contain predictive power in out-of-sample tests. Our results show an asymmetry in the degree of connectedness among the four sectors, with banks playing a much more important role in transmitting shocks than other financial institutions.
    Keywords: Systemic Risk; Financial Institutions; Liquidity; Financial Crises
    JEL: G12 G29 C51
    Date: 2011
  5. By: Anginer, Deniz; de la Torre, Augusto; Ize, Alain
    Abstract: The global financial crisis brought public guarantees to the forefront of the policy debate. Based on a review of the theoretical foundations of public guarantees, this paper concludes that the commonly used justifications for public guarantees based solely on agency frictions (such as adverse selection or lack of collateral) and/or un-internalized externalities are flawed. When risk is idiosyncratic, it is highly unlikely that a case for guarantees can be made without risk aversion. When risk aversion is explicitly added to the picture, public guarantees may be justified by the state's natural advantage in dealing with collective action failures (providing public goods). The state can spread risk more finely across space and time because it can coordinate and pool atomistic agents that would otherwise not organize themselves to solve monitoring or commitment problems. Public guarantees may be transitory, until financial systems mature, or permanent, when risk is fat-tailed. In the case of aggregate (non-diversifiable) risk, permanent public guarantees may also be justified, but in this case the state adds value not by spreading risk but by coordinating agents. In addition to greater transparency in justifying public guarantees, the analysis calls for exploiting the natural complementarities between the state and the markets in bearing risk.
    Keywords: Debt Markets,Banks&Banking Reform,Access to Finance,Insurance&Risk Mitigation,Labor Policies
    Date: 2011–12–01
  6. By: Jae Won Lee (Rutgers University)
    Abstract: This paper analyzes the role of heterogeneous households in propagating shocks over the business cycle by generalizing a basic sticky-price model to allow for imperfect risk-sharing between households that differ in labor incomes. I show that imperfectly insured household consumption distorts household incentive to supply labor hours through an idiosyncratic income effect, which in turn generates strategic complementarities in price setting and thus amplifies business cycle fluctuations. This mechanism diminishes the role of nominal rigidities and makes sticky-price models more consistent with microeconomic evidence on the frequency of price changes.
    Keywords: heterogeneous households, Phillips curve, Price stickiness, Strategic complementarities, Consumption insurance
    JEL: E13 E30 E44
    Date: 2011–11–04
  7. By: Hemerijck, Anton
    Abstract: This article reflects on the important lecture The Welfare State Over the Very Long Run, delivered by Paul Pierson, at the London School of Economics on 8 November 2010, on the occasion of the launch of Oxford Handbook of the Welfare State. Pierson's explanation for what he sees as the surprising stability of the welfare state over the past three to four decades of permanent austerity is largely rooted in fears of electoral ret-ribution and organized interest opposition against social reform (cf. Pierson 2011). While, in a nutshell, Pierson's lecture was a restatement of his famous new politics thesis with a nod to rival theoretical accounts, the present paper tries to go beyond Pierson's account of change-resistant welfare states by adding a number of empirical as-pects and theoretical dimensions to the debate on the long-term transformation of the welfare state. Empirically, on the one hand, the paper highlights several significant qualitative changes in social insurance provision, macroeconomic policy priorities, la-bor market policy and regulation, industrial relations, old age pension, social services and social policy administration, that are largely absent from Pierson's portrayal, also given his choice of data. The observation of profound social reform raises important theoretical issues for the comparative study of welfare state development. Here the pa-per points to underappreciated theoretical mechanisms, especially dynamics of policy learning in mature welfare state. In sum, the paper observes more profound change on the dependent variable requiring both a softening and updating of the theoretical biases to path-dependent institutional inertia. If policy makers, contrary to received wisdom, do engage in major reforms in spite of many institutional obstacles and negative political incentives, what distin-guishes these actors and the institutional conditions under which they operate, from the seemingly more general case of welfare inertia? In conclusion, the article argues that the readiness to use information feedback from past performance, new ideas and expertise and the inspiring reforms successes in many countries, should count as important con-duits or mechanisms explaining reforms. -- Dieser Artikel beschäftigt sich mit dem bedeutenden Vortrag The Welfare State Over the Very Long Run, den Paul Pierson anlässlich der Herausgabe des Oxford Handbook of the Welfare State am 8. November 2010 an der London School of Economics gehalten hat (vgl. Pierson 2011). Piersons Erklärung für die seiner Meinung nach bemerkenswerte Stabilität des Wohlfahrtsstaates in den von permanenter Austerität geprägten vergangenen drei bis vier Jahrzehnten basiert im Wesentlichen auf der Angst der politischen Eliten vor der Abstrafung an der Wahlurne und dem Widerstand organisierter Interessen gegen Sozialreformen. Vorliegender Aufsatz beleuchtet sowohl die empirischen als auch die theoretischen Grenzen dieser These eines wandlungsresistenten Wohlfahrtsstaates. In empirischer Hinsicht weist er auf eine nicht unerhebliche Anzahl von qualitativen Veränderungen hin, etwa auf der Ebene der Sozialversicherung, makroökonomischer Politikprioritäten, der Arbeitsmarktpolitik und -regulierung, der Beziehungen von Arbeitgebern und Arbeitnehmern, Renten, sozialen Dienstleistungen und der Sozialverwaltung. Die Beobachtung grundlegender Sozialreformen werfen wichtige theoretische Fragen für das vergleichende Studium wohlfahrtstaatlicher Entwicklung auf: Was unterscheidet politische Entscheidungsträger und die institutionellen Bedingungen, unter denen sie agieren, von dem anscheinend weitaus üblicheren Fall von Reformträgheit, wenn diese Akteure - entgegen der landläufigen Meinung - trotz einer Vielzahl institutioneller Hindernisse und negativer politischer Anreize umfassende Reformen anstoßen? Als Schlussfolgerung argumentiert dieser Aufsatz, dass die Lehren vergangener Performanz, neue Ideen und Expertisen sowie anregende Reformerfolge in vielen Ländern als wichtige Mechanismen gelten müssen, mit denen sich wohlfahrtstaatliche Veränderungen erklären lassen.
    Date: 2011
  8. By: Arslan, Yavuz; Taskin, Temel
    Abstract: In this paper, we incorporate a price search decision into a life cycle model and differentiate consumption from expenditure. Consumers with low wealth and bad income shocks search more for cheaper prices and pay less, which makes their consumption higher than in a model without search option. A plausibly calibrated version of our model predicts that the cross-sectional variance of consumption is about 17% smaller than the cross-sectional variance of expenditure throughout the life cycle. Price search has an alternative productive activity role for lower-income people to increase their consumption levels. We discuss other implications of price search over the life cycle as well.
    Keywords: Consumption inequality; price search; incomplete markets; life cycle models; partial insurance
    JEL: D91 D10 E21
    Date: 2011–07–01
  9. By: Monfort, A.; Renne, J-P.
    Abstract: In this paper, we propose a model of the joint dynamics of euro-area sovereign yield curves. The arbitrage-free valuation framework involves five factors and two regimes, one of the latter being interpreted as a crisis regime. These common factors and regimes explain most of the fluctuations in euro-area yields and spreads. The regime-switching feature of the model turns out to be particularly relevant to capture the rise in volatility experienced by fixed-income markets over the last years. In our reduced-form set up, each country is characterized by a hazard rate, specified as some linear combinations of the factors and regimes. The hazard rates incorporate both liquidity and credit components, that we aim at disentangling. The estimation suggests that a substantial share of the changes in euro-area yield differentials is liquidity-driven. Our approach is consistent with the fact that sovereign default risk is not diversifiable, which gives rise to specific risk premia that are incorporated in spreads. Once liquidity-pricing effects and risk premia are filtered out of the spreads, we obtain estimates of the actual –or real-world– default probabilities. The latter turn out to be significantly lower than their risk-neutral counterparts.
    Keywords: default risk, liquidity risk, term structure of interest rates, regime-switching, euro-area spreads.
    JEL: E43 E44 E47 G12 G24
    Date: 2011
  10. By: Fernández-Villaverde, Jesús; Greenwood, Jeremy; Guner, Nezih
    Abstract: Societies socialize children about sex. This is done in the presence of peer-group effects, which may encourage undesirable behavior. Parents want the best for their children. Still, they weigh the marginal gains from socializing their children against its costs. Churches and states may stigmatize sex, both because of a concern about the welfare of their flocks and the need to control the cost of charity associated with out-of-wedlock births. Modern contraceptives have profoundly affected the calculus for instilling sexual mores. As contraception has improved there is less need for parents, churches and states to inculcate sexual mores. Technology affects culture.
    Keywords: Add Health; children; church and state; contraception; culture; out-of-wedlock births; parents; peer- group effects; premarital sex; shame; socialization; stigmatization; technological progress
    JEL: E1 E13 J10 J13 N0 O11 O33
    Date: 2011–11
  11. By: Saltari, Enrico; Giuseppe, Travaglini
    Abstract: In this paper we show that financing constraints affect the optimal level of capital stock even when the financing constraint is ineffective. This happens when the firm rationally anticipates that access to external financing resources may be rationed in the future. We will show that with these expectations, the optimal investment policy is to invest less in any given period, thereby lowering the desired optimal capital stock in the long run.
    Keywords: Investment; capital stock; constraints; uncertainty
    JEL: E51 E22 E44
    Date: 2011–11–29
  12. By: Eleonora Pierucci; Luigi Ventura
    Abstract: By means of panel and time series regression analyses, and by resorting to a variance decomposition due to Asdrubali et al. (1996) we show that income flows to and from abroad did not play, in general, a large risk sharing role for a pool of EU countries over the horizon 1976-2007. This is particularly true in a pre-globalization period, but remains true for some countries, even in the finance globalization era. We then extend the analysis to consider a measure of cash flow, instead of income, available for consumption, and observe that capital flows to and from abroad have played a largely destabilizing role, to an extent that one might have not expected beforehand. Key to this result is also the study of asymmetries in smoothing positive and negative shocks by the different possible channels. These findings seem to provide some useful insights onto the origin of the recent global financial crisis
    Keywords: Risk Sharing, Financial Globalization, Capital Flows
    JEL: E2 E6 F15
    Date: 2011–01
  13. By: Alok Johri; Bidyut Kumar Talukdar
    Abstract: Many recent studies have argued that it is useful to introduce a third input into the neoclassical production technology which encapsulates the productivity enhancing knowledge created in the process of production. This input, often called organizational capital, has been shown to improve the predictions of dynamic general equilibrium models, especially at the business cycle frequency. In this paper, we study the impact of organizational capital on optimal capital taxation in the Ramsey tradition and find that the planner would choose to tax capital income in the presence of organizational capital even in environments where earlier models predicted zero taxes or even subsidies.
    Keywords: optimal taxation, Ramsey model, learning-by-doing, organizational capital
    JEL: E6
    Date: 2011–12
  14. By: Joseph D. ALBA (Division of Economics, Nanyang Technological University, Singapore 637332, Singapore); Wai–Mun CHIA (Division of Economics, Nanyang Technological University, Singapore 637332, Singapore); Donghyun PARK (Asian Development Bank6 ADB Avenue, Mandaluyong City,Metro Manila, Philippines 1550)
    Abstract: East Asia’s small open economies were hit in varying degrees by the sharp drop in the output of major industrial countries during the global financial and economic crisis of 2008-2009. This highlights the role of monetary policy regimes in cushioning small open economies from adverse external output shocks. To assess the welfare impact of external shocks on key macroeconomic variables under different monetary policy regimes, we numerically solve and calculate the welfare loss function of a dynamic stochastic general equilibrium (DSGE) model. We find that CPI inflation targeting minimizes welfare losses for import-to-GDP ratios from 0.3 to 0.9. However, welfare under the pegged exchange rate regime is almost equivalent to CPI inflation targeting when the import-to-GDP ratio is one while the Taylor-type rule minimizes welfare when the import-to-GDP ratio is 0.1. We calibrate the model and derive welfare implications for eight East Asian small open economies.
    Keywords: Trade channel, Import-to-GDP ratio, small open economies, welfare, exchange rate regimes, inflation targeting, Taylor rule, foreign output shock
    JEL: F40 F41 E52 F31
    Date: 2011–05

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