nep-ias New Economics Papers
on Insurance Economics
Issue of 2012‒03‒08
eleven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Love, Toil, and Health Insurance: Why American Husbands Retire When They Do By Joshua Congdon-Hohman
  2. Insurance as Delegated Purchasing: Theory and Evidence from Health Care By Robin McKnight; Jonathan Reuter; Eric Zitzewitz
  3. Pricing Full Deposit Insurance in Germany amidst the Financial Crisis 2008-2010 By Markus R. Kosters; Stefan T.M. Streatmans; Mario Maggi
  4. Health-insurance Coverage for Low-wage Workers, 1979-2010 and Beyond By John Schmitt
  5. Risk preferences over small stakes: Evidence from deductible choice By Janko Gorter; Paul Schilp
  6. The Multipillar System for Health Care Financing: Thirteen Good Reasons for Open Capitalisation Funds, Covering both Pension and Health Care Provisions By Pammolli, Fabio; Salerno, Nicola
  7. What Awareness? Consumer Perception of Bank Risk and Deposit Insurance By Michiel Bijlsma; Karen van der Wiel
  8. Should unemployment insurance be asset-tested? By Koehne, Sebastian; Kuhn, Moritz
  9. The Eastern Caribbean Currency Union: Would a Fiscal Insurance Mechanism Mitigate National Income Shocks? By Antonio Lemus; Paul Cashin
  10. Optimal Extortion and Political Risk Insurance By Frédéric Koessler; Ariane Lambert-Mogiliansky
  11. نحو رؤية جديدة لتمويل منشآت الأعمال الصغيرة والمتوسطة By Onour, Ibrahim

  1. By: Joshua Congdon-Hohman (Department of Economics, College of the Holy Cross)
    Abstract: Health insurance has previously been shown to be an important determinant of retirement timing among older Americans. While previous literature has largely ignored the inter-spousal dependence of health insurance benefits, this study examines the relationship of both spouses’ health insurance options to the household’s timing of the husband’s retirement. Using data from the Health and Retirement Study, I find that a wife’s health insurance options have an independent impact on the timing of her husband’s exit from the labor force. This impact is not distinguishable in magnitude to that of a husband’s own health insurance options. Differences for each spouse do arise when each spouse’s health is interacted with his or her health insurance options following a husband’s retirement. The impact of a wife’s health insurance needs on the timing of a husband’s retirement is dependent on her health while the impact of the husband’s insurance options is seemingly unrelated to his health. The omission of inter-spousal health insurance dependency may lead to an underestimation of the cost and the employment response to changes in the health insurance system from newly legislated health care reform.
    Keywords: Retirement, health insurance, household decision-making
    JEL: H55 J26 J32 J44
    Date: 2011–11
  2. By: Robin McKnight; Jonathan Reuter; Eric Zitzewitz
    Abstract: Household demand for actuarially unfair insurance against small risks has long puzzled economists. One way to potentially rationalize this demand is to recognize that (non-life) insurance is an incentive-compatible means of engaging an expert buyer. To quantify the benefits of expert buying, we compare prices paid by the insured and uninsured for health care. In categories of health care where uncompensated care is more difficult to obtain (drugs, doctor office visits, and hospital outpatient visits), we find that insurers pay 10-20% less than the uninsured. For forms of care where payment by the uninsured is more likely to be negotiated after services are rendered (hospitalizations and emergency room visits) the uninsured pay about 30% less on average, due largely to the nontrivial share of uninsured who pay 5% or less of their billed charges. At least in settings where free services are difficult to obtain, expert buying is an important benefit of insurance. We discuss the implications of the delegated-purchasing view of insurance for con-sumer-driven health insurance and for self-insurance by employers.
    JEL: G22
    Date: 2012–02
  3. By: Markus R. Kosters (School of Business and Economics, Maastricht University); Stefan T.M. Streatmans (Maastricht research school of Economics of Technology and Organizations); Mario Maggi (Department of Economics and Quantitative Methods, University of Pavia)
    Abstract: This paper investigates the pricing of full deposit insurance in Germany in the context of its political promise by the German government. We implement the characteristics of the mutual guarantee framework of German banks and the specifics of the German deposit insurance system into a Monte Carlo model. The analysis suggests that banks have an incentive to increase their riskiness if they do not have to bear the fair value of the insurance costs of their deposits. On the other hand, the government should incentivise banks to reduce their size and become more specialized to achieve better diversification in the German banking landscape.
    Keywords: Asset pricing, financial crisis, deposit insurance, mutual guarantee framework
    Date: 2011–05
  4. By: John Schmitt
    Abstract: This paper uses data from the Current Population Surveys for 1980 through 2011 to review trends in health-insurance coverage rates for low-wage workers (defined as workers in the bottom fifth of the wage distribution in each survey year). In 2010, over 38 percent of low-wage workers lacked health insurance from any source, up from 16 percent in 1979. The biggest reason for the decline in coverage is the erosion of employer-provided health insurance, either through a worker's own employer or as a dependent on another family member's employer-provided policy. Over the last three decades, the role of public insurance in providing coverage for low-wage workers has increased, though not nearly enough to offset the declines in private insurance. In 2010, about 10 percent of low-wage workers had coverage through Medicaid, double the share in 1979. While a great deal of uncertainty still surrounds the Affordable Care Act (ACA) and its likely impact on employers and workers, reasonable estimates based on consensus projections suggest that the ACA will have a substantial positive effect on health-insurance coverage rates for low-wage workers. Even so, the ACA will likely leave an important share of low-wage workers, especially low-wage Latino, African American, and Asian workers, as well as many immigrant workers, without coverage. At the same time, if the ACA is blocked – in the courts or in Congress – there is every indication that coverage rates for low-wage workers will continue their long, steady decline.
    Keywords: low-wage work, health insurance
    JEL: J I I1 I18
    Date: 2012–02
  5. By: Janko Gorter; Paul Schilp
    Abstract: This paper provides new field evidence on risk preferences over small stakes. Using unique population and survey data on deductible choice in Dutch universal health insurance, we find that risk preferences are a dominant factor in decision aking. In fact, our results indicate that risk preferences are both statistically and quantitatively more significant in explaining deductible choice behavior than risk type. This finding contrasts with classical expected utility theory, as it implies risk neutrality over small stakes. More recently developed reference-dependent utility models, however, can rationalize risk aversion over small stakes, on account of loss aversion and narrow framing.
    Keywords: consumer preferences; insurance; deductible; decision making; loss aversion
    JEL: D12 D81 G22
    Date: 2012–02
  6. By: Pammolli, Fabio; Salerno, Nicola
    Abstract: CeRM recommendation for creating a new tool, the Open Welfare Funds: open funds based on real capitalisation of contributions, dedicated to both pension and health care provisions, and linked to collective insurance coverage against major health risks (first of all lack of self-sufficiency) Within welfare systems, health care is the expenditure that poses the most urgent problems for long term sustainability. Without policy interventions and structural reforms, its physiological tendency towards increases over Gdp will inevitably require access restrictions and cutting off of demand for services. This paper highlights the need to renew the current health care financing scheme. In the presence of ageing populations and rising incidences of health care expenditures over Gdp, this scheme cannot remain fully in charge of the working income of active people (pay-as-you-go), if we want to avoid depressive effects on employment, investments and productivity. Such effects, besides hampering economic growth, would have a negative impact on health care itself, with resources becoming more and more scarce with respect to needs. The financing scheme must become multipillar, with pay-as-you-go complemented by a private channel based on the real capitalisation of contributions. This channel would be capable of allocating savings, supporting productive investments and generating resources to be dedicated to health care. The best structuring and concrete functioning of the private pillar is less clear and under discussion. This position paper puts forward an operational proposal: the open capitalisation fund for welfare should offer both pension and health care provisions through real accumulation of contributions on individual accounts, and should be linked to collective insurance coverage against major risks and lack of self-sufficiency. This tool presents numerous positive characteristics, compared to the public pay-as-you-go monopillar as well as to a multipillar system in which the private component consists exclusively or mainly of insurance contracts. In fact, it is necessary to restrict the recourse to pure insurance coverage only to a limited group of treatments, because this kind of coverage is not equipped to deal with the dynamics of future expenses. As the difficulties American insurance companies are experiencing demonstrate, the pure insurance coverage ends up with the recurrence, in the private area, of the same defects as the pay-as-you-go in the public health care systems. Insurance pooling is not but a pay-as-you-go scheme applied over the group of insured members.
    Keywords: public finances sustainability; pensions; health care provisions; long-term care; assistance for the elderly; pay-as-you-go; capitalization; monopillar; multipillar; bismark; beveridge; public; private; diversification of expenditures; diversification od sources of financing
    JEL: H53 I00 H00
    Date: 2011
  7. By: Michiel Bijlsma; Karen van der Wiel
    Abstract: <p>This paper provides unique survey evidence on consumer awareness about deposit insurance and on consumer perception of the stability of small and systemic banks. </p><p>It turns out that systemic banks are perceived as less risky compared to non-systemic banks and that respondents’ own bank is considered safer than other banks. We also find that knowledge on the eligibility for deposit insurance is limited, in particular when it concerns small banks. In addition, consumers generally expect an associated payback time that well exceeds the time it has taken to pay back depositors in the past, expecting a higher as well as faster payback for large, systemic banks. This confirms that households’ awareness of the coverage and operations of deposit insurance are suboptimal. We also find that awareness about and trust in the deposit insurance system has only a marginal effect on deposit behavior in “normal” and “crisis” times. Thus, while the evidence suggests that there is ample scope to improve awareness about deposit insurance, it is far from sure that such policies will affect household behavior.</p>
    JEL: D83 D84 G21 G28
    Date: 2012–02
  8. By: Koehne, Sebastian; Kuhn, Moritz
    Abstract: A series of empirical studies has documented that job search behavior depends on the financial situation of the unemployed. Starting from this observation, we ask how unemployment insurance policy should take the individual financial situation into account. We use a quantitative model with a realistically calibrated unemployment insurance system, individual consumption-saving decision and moral hazard during job search to answer this question. We find that the optimal policy provides unemployment benefits that increase with individual assets. By implicitly raising interest rates, asset-increasing benefits encourage self-insurance, which facilitates consumption smoothing during unemployment but does not exacerbate moral hazard for job search. Asset-increasing benefits also have desirable properties from a dynamic perspective, because they emulate key features of the dynamics of constrained efficient allocations. We find welfare gains from introducing asset-increasing benets that are substantial and amount to 1.5% of consumption when comparing steady states and 0.8% of consumption when taking transition costs into account. More generous replacement rates or benefits targeted to asset-poor households, by contrast, have a negative effect on welfare.
    Keywords: unemployment insurance; asset testing; incomplete markets; consumption and saving
    JEL: H21 J65 E21
    Date: 2012–02–27
  9. By: Antonio Lemus; Paul Cashin
    Abstract: This paper studies the nature of the shocks affecting the Eastern Caribbean Currency Union (ECCU), and examines whether a hypothetical Eastern Caribbean fiscal insurance mechanism could insure member countries of the union against asymmetric national income shocks. The empirical results suggest that a one dollar reduction in an ECCU member country's per capita personal income could trigger, through reduced income taxes and increased transfers, flows equivalent to about 7 percent of the initial income shock. Each member of the currency union could benefit as well, although the extent of shock mitigation differs across individual countries.
    Keywords: Caribbean , Eastern Caribbean Currency Union , External shocks , Fiscal policy , Monetary unions , National income ,
    Date: 2012–01–18
  10. By: Frédéric Koessler (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Ariane Lambert-Mogiliansky (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: We study the problem faced by firms that invest in a foreign country characterized by weak governance. Our focus is on extortion relying on the threat of expropriation and bureaucratic harassment. The bureaucrat's power is characterized by looking at a general extortion mechanism adapted from Myerson's (1981) optimal auction theory. This characterization is used to study the determinants of the quality of governance and whether and how political risk insurance of foreign direct investments improve upon it. We find that it does not always improve upon all governance indicators. It always decreases the bureaucrat's total revenue from corruption, but it may also increase the risk of expropriation and the extortion bribes paid by some firms.
    Keywords: Auctions ; Corruption ; Expropriation ; Extortion ; Governance ; Harassment ; Mechanism Design ; Political Constraints ; Political Risk Insurance
    Date: 2012–02
  11. By: Onour, Ibrahim
    Abstract: This paper presents a new model of managing the risk of financing small and medium scale enterprises. The model is based on insurance of a credit fund allocated for SME.
    Keywords: credit risk;SME;Financial risk
    JEL: B21 E51 E00
    Date: 2012

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