nep-ias New Economics Papers
on Insurance Economics
Issue of 2012‒05‒22
fourteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Natural and Industrial Disasters : Land Use and Insurance By Céline Grislain-Letrémy; Bertrand Villeneuve
  2. Active Unemployment Insurance By Røed, Knut
  3. Coordinating Flood Insurance and Collective Prevention Policies: A Fiscal Federalism Perspective By Céline Grislain-Letrémy; Sabine Lemoyne de Forges
  4. Does Employer-Provided Health Insurance Constrain Labor Supply Adjustments to Health Shocks? New Evidence on Women Diagnosed with Breast Cancer By Cathy J. Bradley; David Neumark; Scott Barkowski
  5. Public Self-Insurance and the Samaritan‘s Dilemma in a Federation By Tim Lohse; Julio R. Robledo
  6. Spousal Labor Market Effects from Government Health Insurance: Evidence from a Veterans Affairs Expansion By Melissa A. Boyle; Joanna N. Lahey
  7. The Dependence of Health Insurance Availability on Years Left Before Medicare By Esra Eren Bayindir; Mehmet Y. Gurdal; Ismail Saglam
  8. Granularity Theory with Application to Finance and Insurance By Christian Gouriéroux; University of Lugano
  9. Black swan protection: an experimental investigation By Morone, Andrea; Ozdemir, Ozlem
  10. Are the Dimensions of Private Information More Multiple than Expected? Information Asymmetries in the Market of Supplementary Private Health Insurance in England By Karlsson, Martin; Klohn, Florian; Rickayzen, Ben
  11. Improving the Health-Care System in Poland By Hervé Boulhol; Agnieszka Sowa; Stanislawa Golinowska; Patrizio Sicari
  12. Job Hoarding By Ingmar Nyman; Matthew Baker
  13. Valuation and hedging of the ruin-contingent life annuity (RCLA) By Huaxiong Huang; Moshe A. Milevsky; Thomas S. Salisbury
  14. A different perspective on retirement income sustainability: the blueprint for a ruin contingent life annuity (RCLA) By Huaxiong Huang; Moshe A. Milevsky; Thomas S. Salisbury

  1. By: Céline Grislain-Letrémy (CREST); Bertrand Villeneuve (CREST, Université Paris-Dauphine)
    Keywords: natural disasters, industrial disasters, insurance, land use regulation, hazard maps
    JEL: H23 G22 R52 Q54
    Date: 2011–12
  2. By: Røed, Knut (Ragnar Frisch Centre for Economic Research)
    Abstract: The paper argues that a comprehensive activation strategy is called for – in both unemployment and disability insurance – to minimize the conflict between income insurance and work incentives and to prevent the economic crisis from causing a long-lasting decline in labor force participation. A review of recent empirical evidence, particularly from the Scandinavian countries indicates that "mild" activation requirements effectively counteract moral hazard problems in social insurance. The paper also argues that the distinction between unemployment and disability is blurred, and that both temporary and permanent disability insurance programs should be designed to encourage and support the use of remaining (partial) work capacity.
    Keywords: activation, moral hazard, disability insurance, unemployment insurance, ALMP
    JEL: H55 J65
    Date: 2012–05
  3. By: Céline Grislain-Letrémy (CREST); Sabine Lemoyne de Forges (Ecole Polytechnique)
    Keywords: insurance, fiscal federalism, externalities, prevention, flood
    JEL: D62 H23 Q54
    Date: 2011–02
  4. By: Cathy J. Bradley; David Neumark; Scott Barkowski
    Abstract: Employment-contingent health insurance creates incentives for ill workers to remain employed at a sufficient level (usually full-time) to maintain access to health insurance coverage. We study employed married women, newly diagnosed with breast cancer, comparing labor supply responses to breast cancer diagnoses between women dependent on their own employment for health insurance and women with access to health insurance through their spouse’s employer. We find evidence that women more dependent on their own job for health insurance reduce their labor supply by less after a diagnosis of breast cancer – the estimate difference is about 5.5 to 7 percent. Women’s subjective responses to questions about working more to maintain health insurance are consistent with the conclusions from observed behavior.
    JEL: J2
    Date: 2012–05
  5. By: Tim Lohse; Julio R. Robledo
    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 self-insurance to reduce the size of the loss. Being part of a federation has two countervailing welfare 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 to variable transfers. This induces regions that behave noncooperatively to choose the effi cient level of self-insurance effort.
    Keywords: Intergovernmental transfers; self-insurance; disaster policy
    JEL: H77 H41 H72
    Date: 2012–04
  6. By: Melissa A. Boyle; Joanna N. Lahey
    Abstract: Although government expansion of health insurance to older workers leads to labor supply reductions for recipients, there may be spillover effects on the labor supply of affected spouses who are not covered by the programs. In the simplest model, health insurance on the job is paid for in terms of lower compensation on the job. Receiving health insurance exogenous to employment is akin to a positive income shock for the household, causing total household labor supply to drop. However, it is not clear within the household whether this decrease in labor supply will be borne by both spouses or by a specific spouse. We use a mid-1990s expansion of health insurance for U.S. veterans to provide evidence on the effects of expanding health insurance availability on the labor supply of spouses. Using data from the Current Population Survey, we employ a difference-in-differences strategy to compare the labor market behavior of the wives of older male veterans and non-veterans before and after the VA health benefits expansion to test the impact of public health insurance on these spouses. Our findings suggest that although household labor supply may decrease because of the income effect, the more flexible labor supply of wives allows the wife’s labor supply to increase, particularly for those with lower education levels.
    Date: 2012–05
  7. By: Esra Eren Bayindir; Mehmet Y. Gurdal; Ismail Saglam
    Date: 2012–05
  8. By: Christian Gouriéroux (CREST, University of Toronto); University of Lugano
    Date: 2011
  9. By: Morone, Andrea; Ozdemir, Ozlem
    Abstract: This experimental study investigates insurance decisions in low-probability, high-loss risk situations. Results indicate that subjects consider the probability of loss (loss size) when they make buying decisions (paying decisions). Most individuals are risk averse with no specific threshold probability.
    Keywords: Black swan; Risk; Insurance; Low probability; High loss; Experiment
    JEL: D81 C91
    Date: 2012
  10. By: Karlsson, Martin; Klohn, Florian; Rickayzen, Ben
    Abstract: Our study reexamines standard econometric approaches for the detection of information asymmetries on insurance markets. We claim that evidence based on a standard framework with 2 equations, which uses potential sources of information asymmetries, should stress the importance of heterogeneity in the parameters. We argue that conclusions derived from this methodology can be misleading if the estimated coefficients in such an `unused characteristics' framework are driven by different parts of the population. We show formally that an individual's expected risk from the perspective of insurance, conditioned on certain characteristics (which are not used for calculating the risk premium), can equal the population's expectation in risk - although such characteristics are both related to risk and insurance probability, which is usually interpreted as an indicator of information asymmetries. We provide empirical evidence on the existence of information asymmetries in the market for supplementary private health insurance in the UK. Overall, we found evidence for advantageous selection into the private risk pool; ie people with lower health risk tend to insure more. The main drivers of this phenomenon seem to be characteristics such as income and wealth. Nevertheless, we also found parameter heterogeneity to be relevant, leading to possible misinterpretation if the standard `unused characteristics' approach is applied.
    Keywords: Information Asymmetries; Insurance markets; Applied Econometrics
    Date: 2012–04–16
  11. By: Hervé Boulhol; Agnieszka Sowa; Stanislawa Golinowska; Patrizio Sicari
    Abstract: Since the transformation following the Communist era, Poland has matched improvements in health outcomes of the most developed OECD countries, although without catching up the ground lost during the 1970s and 1980s. The health status of the population remains relatively poor, although after controlling for per capita income health outcomes are only slightly below the OECD average. The Polish health-care system is characterised by low spending, a heavily regulated public system with a stringent budget constraint, restricted sub-national government autonomy and a thin private insurance market. Heavy out-of-pocket payments and long waiting lists generate inequalities in access to care. The most pressing issues to be addressed concern: easing the substantial limitations in access to care; reducing persistent inequalities; carefully designing new private health insurance; better coordinating among major public actors; improving hospital management; strengthening the gate-keeping function played by generalists; and developing a comprehensive long-term-care strategy. This Working Paper relates to the 2012 OECD Economic Review of Poland (<P>Améliorer le système de soins de santé en Pologne<BR>Depuis qu’elle a opéré sa transformation post-communiste, la Pologne a enregistré des progrès comparables à ceux des pays de l’OCDE les plus développés dans le domaine de la santé, sans toutefois parvenir à regagner le terrain perdu au cours des années 70 et 80. L’état de santé de la population reste relativement mauvais même si, après contrôle du revenu par habitant, les indicateurs de santé ne sont que légèrement inférieurs aux moyennes de l’OCDE. Le système de santé de la Pologne se caractérise par de faibles dépenses, un système public fortement réglementé et assujetti à des contraintes budgétaires strictes, une autonomie limitée des autorités infrarégionales et un marché de l’assurance privée peu développé. Les dépenses élevées laissées à la charge des patients et les longues listes d’attente engendrent des inégalités d’accès aux soins. Les priorités les plus pressantes sont les suivantes : alléger les lourdes restrictions d’accès aux soins ; réduire les inégalités persistantes ; mettre en place de nouvelles formules d’assurance-maladie privée soigneusement conçues ; mieux coordonner les principaux acteurs publics ; améliorer la gestion des hôpitaux ; renforcer la fonction de filtrage des médecins généralistes ; et élaborer une stratégie complète en matière de soins de longue durée. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Pologne 2012 (
    Keywords: Poland, pharmaceuticals, health care system, hospitals, physicians, health-care insurance, waiting lists, Pologne, système de santé, médicaments, hôpitaux, assurance médicale, listes d’attente, docteurs
    JEL: I1
    Date: 2012–05–10
  12. By: Ingmar Nyman (Hunter College); Matthew Baker (Hunter College)
    Abstract: We study a labor market in which principals and agents must search for a trading partner, and agents have private information about the value of a match. We show that competitive pressure can induce agents to lie and over-state the value of the match. This leads to insufficient frictional unemployment and search, and lower average productivity and utility. A fully tax-financed unemployment insurance can therefore eliminate the inefficiency. Moreover, because inefficient “job-hoarding” by workers occurs when there are many workers per job, the analysis provides a novel explanation for the stylized macroeconomic fact that labor productivity is procyclical.
    Keywords: Search; Private Information; Competition; Labor Productivity; Unemployment Insurance
    JEL: D24 D82 D83 E32 J64
    Date: 2012
  13. By: Huaxiong Huang; Moshe A. Milevsky; Thomas S. Salisbury
    Abstract: This paper analyzes a novel type of mortality contingent-claim called a ruin-contingent life annuity (RCLA). This product fuses together a path-dependent equity put option with a "personal longevity" call option. The annuitant's (i.e. long position) payoff from a generic RCLA is \$1 of income per year for life, akin to a defined benefit pension, but deferred until a pre-specified financial diffusion process hits zero. We derive the PDE and relevant boundary conditions satisfied by the RCLA value (i.e. the hedging cost) assuming a complete market where No Arbitrage is possible. We then describe some efficient numerical techniques and provide estimates of a typical RCLA under a variety of realistic parameters. The motivation for studying the RCLA on a stand-alone basis is two-fold. First, it is implicitly embedded in approximately \$1 trillion worth of U.S. variable annuity (VA) policies; which have recently attracted scrutiny from financial analysts and regulators. Second, the U.S. administration - both Treasury and Department of Labor - have been encouraging Defined Contribution (401k) plans to offer stand-alone longevity insurance to participants, and we believe the RCLA would be an ideal and cost effective candidate for that job.
    Date: 2012–05
  14. By: Huaxiong Huang; Moshe A. Milevsky; Thomas S. Salisbury
    Abstract: The purpose of this article is twofold. First, we motivate the need for a new type of stand-alone retirement income insurance product that would help individuals protect against personal longevity risk and possible "retirement ruin" in an economically efficient manner. We label this product a ruin-contingent life annuity (RCLA), which we elaborate-on and explain with various numerical examples and a basic pricing model. Second, we argue that with the proper perspective a similar product actually exists, albeit not available on a stand-alone basis. Namely, they are fused and embedded within modern variable annuity (VA) policies with guaranteed living income benefit (GLiB) riders. Indeed, the popularity of GLiB riders on VA policies point towards the potential commercial success of such a stand-alone vehicle.
    Date: 2012–05

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