|
on Insurance Economics |
|
Issue of 2012‒07‒01
six papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Schoenmaker, Dirk; Gros, Daniel |
| Abstract: | The eurozone is caught in a ‘diabolical loop’ in which weak domestic banking systems damage sovereign fiscal positions and conversely, in which risky sovereign positions disproportionately threaten domestic banking stability. A European-level banking system could go a long way towards breaking this unfortunate loop and stabilising the eurozone. This would require a European safety net for cross-border banks. This paper sketches the building blocks of a European Deposit Insurance Fund. We calculate that such a Fund would amount to €55 billion for the 35 largest European banks. This Fund could be created over ten years through risk-based deposit insurance premiums levied on the top 35 banks. Once fully up and running, the Fund could also deal with the resolution of one or more of these 35 banks. The Fund would then be turned into a European Deposit Insurance and Resolution Fund. The paper aims to promote debate among policy-makers, industry and academia. |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:eps:cepswp:6918&r=ias |
| By: | Enzo A. Cerletti (CEMFI, Centro de Estudios Monetarios y Financieros); Josep Pijoan-Mas (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | In this paper we study the transmission of income shocks into nondurable consumption in the presence of durable goods. We use a standard a life-cycle model with two goods to characterize the interaction of durability of goods, durability of shocks, and borrowing constraints as determinants of shock transmission. We show that borrowing constraints lead to a substitution between durable and non-durable goods upon arrival of an unexpected income change. This substitution biases the conventional measures of insurance based on the response of non-durable consumption to income changes. The sign of this bias depends critically on the persistence of the shock. We show that households have less insurance against transitory shocks and more insurance against permanent shocks than commonly measured. We calibrate the model economy to the US in order to measure the size of this bias. |
| Keywords: | Consumption insurance, durable goods, incomplete markets, borrowing constraints, persistence of income shocks. |
| JEL: | E21 D91 D12 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2012_1206&r=ias |
| By: | Margolis, David Naum (World Bank); Navarro, Lucas (Universidad Alberto Hurtado); Robalino, David A. (World Bank) |
| Abstract: | This paper analyses the potential impacts of introducing unemployment insurance (UI) in middle income countries using the case of Malaysia, which today does not have such a system. The analysis is based on a job search model with unemployment and three employment sectors: formal and informal wage employment, and self employment. The parameters of the model are estimated to replicate the structure of the labor market in Malaysia in 2009 and the distribution of earnings for informal, formal and self employed workers. The results suggest that unemployment insurance would have only a modest negative effect on unemployment if benefits are not overly generous. The main effect would be a reallocation of labor from wage into self employment while increasing average wages in the formal and informal sectors. |
| Keywords: | unemployment insurance, informal sector, self employment, job search |
| JEL: | J64 J65 O17 J23 J31 J21 J62 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6660&r=ias |
| By: | David Autor; Mark Duggan; Jonathan Gruber |
| Abstract: | We provide a detailed analysis of the incidence, duration and determinants of claims made on private Long Term Disability (LTD) policies using a database of approximately 10,000 policies and 1 million workers from a major LTD insurer. We document that LTD claims rates are much lower than claims rates on the public analogue to LTD, the Social Security Disability Insurance program, yet LTD policies have a much higher return-to-work rate among initial claimants. Nevertheless, our analysis indicates that the impact of moral hazard on LTD claims is substantial. Using within firm, over time variation in plan parameters, we find that a higher replacement rate and a shorter waiting time to benefits receipt—also known as the Elimination Period or EP—significantly increase the likelihood that workers claim LTD. About sixty percent of the effect of a longer EP is due to censoring of shorter claims, while the remainder is due to deterrence: workers facing a longer EP are less likely to claim benefits for impairments that would lead to a only a brief period of LTD receipt. This deterrence effect is equally large among high and low-income workers, suggesting that moral hazard rather than liquidity underlies the behavioral response. Consistent with this interpretation, the response of LTD claims to plan parameters is driven primarily by the behavior of the healthiest disabled, those who would return to work after receiving LTD. |
| JEL: | H55 J32 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18172&r=ias |
| By: | Furtado, Delia (University of Connecticut); Theodoropoulos, Nikolaos (University of Cyprus) |
| Abstract: | This paper examines the role of ethnic networks in disability program take-up among working-age immigrants in the United States. We find that even when controlling for country of origin and area of residence fixed effects, immigrants residing amidst a large number of co-ethnics are more likely to receive disability payments when their ethnic groups have higher take-up rates. Although this pattern can be partially explained by cross-group differences in satisfying the work history or income and asset requirements of the disability programs, we also find that social norms and, to a lesser extent, information sharing play important roles. |
| Keywords: | social security disability insurance, supplementary security income, networks, immigrants |
| JEL: | C31 H55 I18 J61 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6649&r=ias |
| By: | Benos, Evangelos (Bank of England); Garratt, Rodney (University of California at Santa Barbara); zimmerman, Peter (Bank of England) |
| Abstract: | We use payments data for the period 2006-09 to study the impact of the global financial crisis on payment patterns in CHAPS, the United Kingdom’s large-value wholesale payments system. CHAPS functioned smoothly throughout the crisis and all CHAPS settlement banks continued to meet their payment obligations. However, the data show that in the two months following the Lehman Brothers failure, banks did, on average, make payments at a slower pace than before the failure. Our analysis suggests this was partly explained by concerns about counterparty default risk as well as system-wide risk. The ratio of payments made to liquidity used was 30% lower in the period from 15 September 2008 to 30 September 2009 than in the period preceding the default of Lehman Brothers. This was due initially to payment delay, but later was due to banks making more payments with their own liquidity, probably because quantitative easing increased the amount of reserves in the system. To assess the economic significance of the observed delays in the value of payments settled, we develop risk indicators, based on Markov models, to quantify the theoretical liquidity impact of delays during an operational outage. We find that payment delays in the months following the failure of Lehman Brothers led to a statistically significant but economically modest increase in these risk measures. |
| Keywords: | Payments; Intraday liquidity; Credit default swap; Operational outage; Insurance |
| JEL: | E42 |
| Date: | 2012–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0451&r=ias |