nep-ias New Economics Papers
on Insurance Economics
Issue of 2012‒04‒03
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Insurance Demand under Prospect Theory:A Graphical Analysis By Ulrich Schmidt
  2. Does unemployment insurance crowd out home production? By Taskin, Temel
  4. Public self-insurance and the Samaritan's dilemma in a federation By Lohse, Tim; Robledo, Julio R.
  5. The Impact of Colombia's Pension and Health Insurance Systems on Informality By Calderón-Mejía, Valentina; Marinescu, Ioana E.
  6. The Future of Environmental Compliance Incentives in U.S. Agriculture: The Role of Commodity, Conservation, and Crop Insurance Programs By Claassen, Roger
  7. Building social protection and labor systems : concepts and operational implications By Robalino, David A.; Rawlings, Laura; Walker, Ian
  8. Consumption, investment and life insurance strategies with heterogeneous discounting By Albert de-Paz; Jesus Marin-Solano; Jorge Navas; Oriol Roch

  1. By: Ulrich Schmidt
    Abstract: This paper analyzes insurance demand under prospect theory in a simple model with two states of the world and fair insurance contracts. We argue that two different reference points are reasonable in this framework, state-dependent initial wealth or final wealth after buying full insurance. Applying the value function of Tversky and Kahneman (1992), we find that for both reference points subjects will either demand full insurance or no insurance at all. Moreover, this decision depends on the probability of the loss: the higher the probability of the loss, the higher is the propensity to take up insurance. This result can explain empirical evidence which has shown that people are unwilling to insure rare losses at subsidized premiums and at the same time take-up insurance for moderate risks at highly loaded premiums
    Keywords: insurance demand, prospect theory, flood insurance, diminishing sensitivity, loss, aversion
    JEL: D14 D81 G21
    Date: 2012–03
  2. By: Taskin, Temel
    Abstract: In this paper, we study the interaction between self insurance and public insurance. In particular, we provide evidence on the relationship between unemployment insurance benefits and home production using the American Time Use Survey (ATUS) and the state-level unemployment insurance data of the U.S. The empirical results suggest that moving to a two times more generous state would decrease time spent on home production about 20% for unemployed. Then we pursue a quantitative assessment using a dynamic competitive equilibrium model in which households do home production as well as market production. The model is able to generate the empirical facts regarding unemployment benefits and home production. The fact that unemployment insurance benefits crowd out home production is interpreted as a substitution between the two insurance mechanisms against loss of earnings during unemployment spells.
    Keywords: Unemployment insurance; home production; public insurance; self insurance; heterogeneous agents models
    JEL: D13 J65 D91 E21
    Date: 2012–02
  3. By: Shehu Usman Hassan Author_Email: (Ahmadu Bello University, Zaria, Nigeria)
    Keywords: Capital Structure determinants, Leverage, Nigerian Insurance firms.
    JEL: M0
    Date: 2011–06
  4. By: Lohse, Tim; Robledo, Julio R.
    Abstract: Motivated by recent disasters, this paper analyzes the risk sharing aspect in a federation. The regions can be hit by a shock leading to losses that occur with an exogenous probability and in a stochastically independent way. The regions can spend effort on selfinsurance to reduce the size of the loss. Being part of a federation has two countervailing -elfare effects. On the one hand, there is the well known welfare increase due to risk pooling. On the other hand, the self-insurance effort is a public good, because all regions benefit from the reduction of the loss. There exists a Samaritan's dilemma kind of effect whereby regions reduce their self-insurance effort potentially leading to an overall welfare decrease. The central government can solve this dilemma by committing to fixed rather than variable transfers. This induces regions that behave non-cooperatively to still choose the efficient level of self-insurance effort. --
    Keywords: intergovernmental transfers,self-insurance,disaster policy
    JEL: H77 H41 H72
    Date: 2012
  5. By: Calderón-Mejía, Valentina (University of Chicago); Marinescu, Ioana E. (Harris School, University of Chicago)
    Abstract: Social protection systems in developing countries are typically composed of a bundle of benefits, the major ones being health insurance and pensions. Benefit bundling may increase informality and decrease welfare. Indeed, if some of the benefits are valued at substantially less than their cost, workers may choose to forego all benefits, even though some other benefits are valued at or above their cost. We examine the impact of benefit bundling using a series of Colombian reforms. The key reform is the unification of the payment systems for health and pension, which made it more difficult to contribute differently to the one plan versus the other. Using the progressive roll-out of the unified payment system by firm size, we show that benefit bundling increases both full formality and full informality by about 1 percentage point. The increase in full formality is concentrated among salaried workers in small to medium firms, while the increase in full informality is concentrated among independent workers.
    Keywords: informal sector, pensions, health insurance, social protection, Colombia
    JEL: I11 I18 O17
    Date: 2012–03
  6. By: Claassen, Roger
    Abstract: In recent years, direct payments—a type of farm commodity program payment—have made up a large share of Federal agriculture assistance that could be withheld from farmers who fail to comply with highly erodible land conservation (conservation compliance and sodbuster) or wetland conservation (swampbuster) provisions, known collectively as environmental compliance requirements. If direct payments are sharply reduced or eliminated to help reduce the Federal budget defi cit, compliance incentives would be reduced on many farms, potentially increasing environmental quality problems. Some farmers will still be subject to compliance through existing Federal agricultural programs(e.g., conservation or disaster programs) or programs that may succeed direct payments. Making federally subsidized crop insurance subject to compliance could also make up some of the lost incentive to farmers.
    Keywords: Direct payment, crop insurance, conservation compliance, sodbuster, swampbuster, Environmental Economics and Policy, Land Economics/Use,
    Date: 2012–03
  7. By: Robalino, David A.; Rawlings, Laura; Walker, Ian
    Abstract: This paper presents a framework for designing and implementing social protection and labor (SP&L) systems in middle and low income countries. Although the term'system'is used to describe a country's set of social protection programs, these tend to operate independently with little or no coordination even when they have the same policy objective and target similar population groups. The paper argues that enhancing coordination across SP&L policies, programs, and administrative tools has the potential to enhance both individual program performance as well as the overall provision of social protection across programs. The first part of the paper discusses the characteristics of well?designed social protection systems. It also points to the gains and some of the risks - of moving toward systems, including: (i) more effective risk management in crisis and non?crisis periods; (ii) improved financial sustainability; (iii) more equitable redistribution; (iv) economies of scale in administration; and (v) better incentives. The second part discusses issues related to design and implementation based on country studies for Brazil, Chile, India, Niger, Romania, and Vietnam. It suggests three levels of engagement to support the design of SP&L systems: (a) at the policy level, defining how different instruments (e.g., savings, risk pooling, redistribution) interact, and coordinating financing mechanisms and institutional arrangements; (b) at the program level, improving the design of individual programs and creating synergies with other programs within and across social protection functions; and (c) at the administrative level, setting up basic'nuts and bolts'tools that can work across programs, such as beneficiary identification and registry, payment mechanisms, and management information systems. The last part of the paper outlines some of the implications of a systems vision for the World Bank's social protection and labor practice.
    Keywords: Labor Markets,Insurance Law,Insurance&Risk Mitigation,Labor Policies,Poverty Impact Evaluation
    Date: 2012–03–01
  8. By: Albert de-Paz; Jesus Marin-Solano; Jorge Navas; Oriol Roch (Universitat de Barcelona)
    Abstract: In this paper we analyze how the optimal consumption, investment and life insur- ance rules are modified by the introduction of a class of time-inconsistent preferences. In particular, we account for the fact that an agents preferences evolve along the planning horizon according to her increasing concern about the bequest left to her descendants and about her welfare at retirement. To this end, we consider a stochas- tic continuous time model with random terminal time for an agent with a known distribution of lifetime under heterogeneous discounting. In order to obtain the time- consistent solution, we solve a non-standard dynamic programming equation. For the case of CRRA and CARA utility functions we compare the explicit solutions for the time-inconsistent and the time-consistent agent. The results are illustrated numeri- cally.
    Keywords: life insurance, time-consistency, consumption and portfolio rules, heterogeneous discounting
    JEL: D91 G11 C61
    Date: 2012

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