nep-ias New Economics Papers
on Insurance Economics
Issue of 2012‒02‒20
ten papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Impact of Health Insurance for Children: Evidence from Vietnam By Nguyen Viet, Cuong
  2. Insurance versus Savings for the Poor: Why One Should Offer Either Both or None By Landmann, Andreas; Vollan, Björn; Frölich, Markus
  3. Climate Change, Weather Insurance Design and Hedging Effectiveness By Ines Kapphan; Pierluigi Calanca; Annelie Holzkaemper
  4. Is it all about Money? A Randomized Evaluations of the Impact of Insurance Literacy and Marketing Treatments on the Demand for Health Microinsurance in Senegal By BONAN Jacopo; DAGNELIE Olivier; LEMAY-BOUCHER Philippe; TENIKUE Michel
  5. Moral Hazard in Health Insurance: How Important Is Forward Looking Behavior? By Aviva Aron-Dine; Liran Einav; Amy Finkelstein; Mark R. Cullen
  6. Weather index drought insurance: an ex ante evaluation for millet growers in Niger By Leblois, Antoine; Quirion, Philippe; Alhassane, Agali; Traore, Seydou
  7. The Long-Term Effects of Unemployment Insurance Extensions on Employment By Johannes F. Schmieder; Till M. von Wachter; Stefan Bender
  8. The Impact of Colombia's Pension and Health Insurance Systems on Informality By Valentina Calderón; Ioana Marinescu
  9. The Effects of Extended Unemployment Insurance over the Business Cycle: Evidence from Regression Discontinuity Estimates Over Twenty Years By Johannes F. Schmieder; Till M. von Wachter; Stefan Bender
  10. Risk attitudes and Medicare Part D enrollment decisions By Vetter, Stefan; Heiss, Florian; McFadden, Daniel; Winter, Joachim

  1. By: Nguyen Viet, Cuong
    Abstract: Although there are numerous studies on impact evaluation of overall health insurance, little is known on the impact of health insurance on health care utilization and out-of-pocket health care spending of children, especially in developing countries. This paper measures the impact of child health insurance on health care utilization and spending of children from 6 to 14 years old in Vietnam using two recent nationally representative surveys. Unlike previous empirical studies which found a positive effect of health insurance on health care utilization in Vietnam, we did not find a statistically significant effect of school health insurance as well as free health insurance for children on outpatient health care contacts. However, the school health insurance and free health insurance help the insured children decrease out-of-pocket spending per outpatient contact by around 14 and 26 percent, respectively.
    Keywords: Child health insurance; impact evaluation; health care utilization; out-of-pocket spending; Vietnam
    JEL: G22 H51 H43 I10
    Date: 2011–06–21
  2. By: Landmann, Andreas (University of Mannheim); Vollan, Björn (University of Mannheim); Frölich, Markus (University of Mannheim)
    Abstract: This paper analyzes data from a novel field experiment designed to test the impact of two different insurance products and a secret saving device on solidarity in risk-sharing groups among rural villagers in the Philippines. Risk is simulated by a lottery. Risk-sharing is possible in solidarity groups of three and insurance is introduced via less risky lotteries. Our main hypothesis is that formal market-based products lead to lower voluntary transfers among network members. We also test for the persistence of this crowding-out of solidarity. We find evidence for a reduction of solidarity by insurance if shocks are observable. Depending on insurance design, there is also evidence for persistence of this effect even if insurance is removed. Simulations using our regression results show that the benefits of insurance are completely offset by the reduction in transfers. However, if secret saving is possible solidarity is very low in general and there is no crowding out effect of insurance. This suggests that introducing formal insurance is not as effective as it is hoped for when the monetary situation can be closely monitored, but that it might be a very important complement when savings inhibit observing financial resources. The implication for policy is that microsavings should be offered simultaneously with microinsurance.
    Keywords: insurance, savings, informal risk sharing, crowding out, field lab experiment, Philippines
    JEL: C93 O12 Z13
    Date: 2012–01
  3. By: Ines Kapphan (Agri-food & Agri-environmental Economics Group (AFEE), Institute for Environmental Decisions IED, ETH Zurich); Pierluigi Calanca (Forschungsanstalt Agroscope Reckenholz-Tänikon ART, Zurich); Annelie Holzkaemper (Forschungsanstalt Agroscope Reckenholz-Tänikon ART, Zurich)
    Abstract: The insurance industry has so far relied on historical data to develop and price weather insurance contracts. In light of climate change, we examine the effects of this practice in terms of the hedging effectiveness and profitability of insurance contracts. We use simulated crop and weather data for today’s and future climatic conditions to derive optimal weather insurance contracts. We assess the hedging effectiveness and profits of adjusted contracts that are designed with data that accounts for the changing distribution of weather and yields due to climate change. We find that, with climate change, the benefits from hedging with adjusted contracts almost triple and expected profits increase by about 240%. Furthermore, we investigate the effect on risk reduction (for the insured) and profits (for the insurer) from hedging future weather risks with non-adjusted contracts, which are based on historical weather and yield data. When offering non-adjusted insurance contracts, we find that insurers either face substantial losses, or generate profits that are significantly smaller than profits from offering adjusted insurance products. Non-adjusted insurance contracts that create profits in excess of the profits from adjusted contracts cause at the same time negative hedging benefits for the insured. We observe that non-adjusted contracts exist that create simultaneously positive profits and hedging benefits, however at a much larger uncertainty compared to the corresponding adjusted contracts.
    Keywords: weather insurance design, climate change, non-stationarity, hedging effectiveness
    Date: 2011–09
  4. By: BONAN Jacopo; DAGNELIE Olivier; LEMAY-BOUCHER Philippe; TENIKUE Michel
    Abstract: In Senegal mutual health organizations (MHOs) have been present in the greater region of Thiès for years. Despite their benefits, in some areas there remain low take-up rates. We offer an insurance literacy module, communicating the benefits from health microinsurance and the functioning of MHOs, to a randomly selected sample of households in the city of Thiès. The effects of this training, and three cross-cutting marketing treatments, are evaluated using a randomized control trial. We find that the insurance literacy module has no impact, but that our marketing treatment has a significant effect on the take up decisions of households.
    Keywords: community based health insurance scheme; Randomized control trials; Africa; Senegal
    JEL: C93 O17
    Date: 2012–02
  5. By: Aviva Aron-Dine; Liran Einav; Amy Finkelstein; Mark R. Cullen
    Abstract: We investigate whether individuals exhibit forward looking behavior in their response to the non-linear pricing common in health insurance contracts. Our empirical strategy exploits the fact that employees who join an employer-provided health insurance plan later in the calendar year face the same initial ("spot") price of medical care but a higher expected end-of-year ("future") price than employees who join the same plan earlier in the year. Our results reject the null of completely myopic behavior; medical utilization appears to respond to the future price, with a statistically significant elasticity of medical utilization with respect to the future price of -0.4 to -0.6. To try to quantify the extent of forward looking behavior, we develop a stylized dynamic model of individual behavior and calibrate it using our estimated behavioral response and additional data from the RAND Health Insurance Experiment. Our calibration suggests that the elasticity estimate may be substantially smaller than the one implied by fully forward-looking behavior, yet it is sufficiently high to have an economically significant effect on the response of annual medical utilization to a non-linear health insurance contract. Overall, our results point to the empirical importance of accounting for dynamic incentives in analyses of the impact of health insurance on medical utilization.
    JEL: D12 G22
    Date: 2012–02
  6. By: Leblois, Antoine; Quirion, Philippe; Alhassane, Agali; Traore, Seydou
    Abstract: In the Sudano-Sahelian region, which includes South Niger, the inter-annual variability of the rainy season is high and irrigation is scarce. As a consequence, bad rainy seasons have a massive impact on crop yield and regularly entail food crises. Traditional insurances based on crop damage assessment are not available because of asymmetric information and high transaction costs compared to the value of production. We assess the risk mitigation capacity of an alternative form of insurance which has been implemented in India since 2003: insurance based on a weather index. We compare the capacity of various weather indices to increase utility of a representative risk-averse farmer. We show the importance of using plot-level yield data rather than village averages, which bias results. We also illustrate the need for out-of-sample estimations in order to avoid overfitting. Even with the appropriate index and assuming a substantial risk aversion, we find a limited gain of implementing insurance, roughly corresponding to, or slightly exceeding, the cost of implementing such insurances observed in India. However, when we treat separately the plots with and without fertilizers, we show that the benefit of insurance is higher in the former case. This suggests that insurances may increase the use of risk-increasing inputs like fertilizers and improved cultivars, hence average yields, which are very low in the region.
    Keywords: Agriculture, index-based insurance., Crop Production/Industries, Risk and Uncertainty, G21, O12, Q12, Q18, Q54.,
    Date: 2011
  7. By: Johannes F. Schmieder; Till M. von Wachter; Stefan Bender
    Abstract: The majority of papers analyzing the employment effects of unemployment insurance (UI) benefit durations focuses on the duration of the first unemployment spell. In this paper, we make two contributions. First, we use a regression discontinuity design to analyze the long-term effects of extensions in UI durations. These estimates differ from standard estimates that they incorporate differences in UI benefit receipt and employment due to recurrent unemployment spells. Second, we derive a welfare formula of UI extensions that incorporates recurrent nonemployment spells. We find that accounting for nonemployment beyond the initial spell leads to a significant reduction in estimates of the nonemployment effect of UI extensions by about 25 percent. We show this effect is only partly explained by a mechanical effect due to finite follow-up durations, and mainly arises from a lower probability of days in nonemployment in months after end of the initial nonemployment spell.
    JEL: J64 J65
    Date: 2012–02
  8. By: Valentina Calderón; Ioana Marinescu
    Abstract: This paper examines how changes in the legislation governing health and pension benefits that took place between 2003 and 2008 in Colombia affected the informal and formal labor markets. In particular, this paper examines two major changes in the legislation. First, it looks at the effects of imposing the requirement to use the same base income to contribute to both health insurance and pensions for independent workers using a difference-in-differences strategy. Second, this document addresses the effects of unifying health and pension system payments, which required employers to make contributions to these two plans through a unified payment system, making it more difficult to contribute differently to the one plan versus the other. The results presented in this paper suggest that this reform increased both full formality and full informality, but with larger positive effects on full formality.
    Keywords: Labor :: Social Security, Health :: Health Policy, Social Development :: Social Policy & Protection, Informal Sector, Pensions, Health Insurance, Social Protection
    JEL: I11 I18 O17
    Date: 2011–03
  9. By: Johannes F. Schmieder; Till M. von Wachter; Stefan Bender
    Abstract: One goal of extending the duration of unemployment insurance (UI) in recessions is to increase UI coverage in the face of longer unemployment spells. Although it is a common concern that such extensions may themselves raise nonemployment durations, it is not known how recessions would affect the magnitude of this moral hazard. To obtain causal estimates of the differential effects of UI in booms and recessions, this paper exploits the fact that, in Germany, potential UI benefit duration is a function of exact age which is itself invariant over the business cycle. We implement a regression discontinuity design separately for twenty years and correlate our estimates with measures of the business cycle. We find that the nonemployment effects of a month of additional UI benefits are, at best, somewhat declining in recessions. Yet, the UI exhaustion rate, and therefore the additional coverage provided by UI extensions, rises substantially during a downturn. The ratio of these two effects represents the nonemployment response of workers weighted by the probability of being affected by UI extensions. Hence, our results imply that the effective moral hazard effect of UI extensions is significantly lower in recessions than in booms. Using a model of job search with liquidity constraints, we also find that, in the absence of market-wide effects, the net social benefits from UI extensions can be expressed either directly in terms of the exhaustion rate and the nonemployment effect of UI durations, or as a declining function of our measure of effective moral hazard.
    JEL: J64 J65
    Date: 2012–02
  10. By: Vetter, Stefan; Heiss, Florian; McFadden, Daniel; Winter, Joachim
    Abstract: The new Medicare Part D program provides prescription drug coverage for older Americans through highly subsidized and tightly regulated plans offered by private insurance firms. For most eligible individuals without coverage from other sources, obtaining Part D coverage would be rational, but it requires active enrollment and plan choice decisions. We investigate if non-enrollment in Medicare Part D can partly be explained by risk aversion. Data are taken from a national online survey conducted just after the introduction Part D. The survey included a context-free and a context-related hypothetical lottery to measure an individual’s attitude towards risk. Respondents who are risk tolerant according to these measures were significantly less likely to enroll in Part D. We also illustrate that hypothetical choice questions designed to elicit risk attitudes are subject to reference-point effects. Even minor differences in the priming of respondents can result in potentially misleading conclusions about the role of risk aversion in the insurance decisions.
    Keywords: Risk aversion; Medicare Part D; heterogeneous preferences; insurance demand; survey design
    JEL: D03 D81 H51 I1
    Date: 2012–02

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