nep-ias New Economics Papers
on Insurance Economics
Issue of 2012‒07‒08
ten papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Health insurance as a productive factor By Dizioli, Allan; Pinheiro, Roberto B.
  2. Risk-sharing or risk-taking? Counterparty risk, incentives and margins By Bruno Biais; Florian Heider; Marie Hoerova
  3. Enhancing Financial Services through Portfolio-Level Disaster Insurance By Collier, Benjamin; Skees, Jerry R.
  4. The Effect of U.S. Health Insurance Expansiosn on Medical Innovation By Jeffrey Clemens
  5. Insurance premiums and GM traits By Nolan, Elizabeth; Santos, Paulo
  6. Effects of Federal Policy to Insure Young Adults: Evidence from the 2010 Affordable Care Act Dependent Coverage Mandate By Yaa Akosa Antwi; Asako S. Moriya; Kosali Simon
  7. Unter welchen Bedingungen fördert die „Riester-Förderung“? Eine theoretische Analyse unter simultaner Einbeziehung von Kosten- und Steuereffekten By Silvana Stahl; Stefan Stahl; Philipp Kasch
  8. Microinsurance in Brazil, Colombia, Mexico, and Peru By Sheirin Iravantchi; Mark D. Wenner
  9. Vulnerability and Responses to Risk in Rural India By Raghbendra Jha; Woojin Kang; Hari K. Nagarajan; Kailash C. Pradhan
  10. Retiree Health Benefits as Deferred Compensation: Evidence from the Health and Retirement Study By James Marton; Stephen A. Woodbury

  1. By: Dizioli, Allan; Pinheiro, Roberto B.
    Abstract: In this paper, we present a less-explored channel through which health insurance impacts productivity: by offering health insurance, employers reduce the expected time workers spend out of work in sick days. Using data from the Medical Expenditure Panel Survey (MEPS), we show that a worker with health coverage misses on average 52% fewer workdays than uninsured workers, after controlling for endogeneity. We develop a model that embodies this impact of health coverage in productivity. In our model, health insurance reduces the probability that a healthy worker gets sick, missing workdays, and it increases the probability that a sick worker recovers and returns to work. In our model, firms that offer health insurance are larger and pay higher wages in equilibrium, a pattern observed in the data. We calibrated the model using US data for 2004 and show the impact of increases in health costs, as well as of changes in tax benefits of health insurance expenses, on labor force health coverage and productivity. Finally, we show that a government mandate that forces firms to offer health insurance increases average wages and aggregate productivity while reducing aggregate profits, ultimately having a positive impact on welfare.
    Keywords: Health; Health Insurance; Labor Productivity; Labor Markets
    JEL: E62 E25 J32 J78 J63 E24 E20 I10
    Date: 2012–06–29
  2. By: Bruno Biais (Toulouse School of Economics (CNRS-CRM, IDEI), 21 Allée de Brienne, 31000 Toulouse, France.); Florian Heider (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Marie Hoerova (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: We analyze optimal hedging contracts and show that although hedging aims at sharing risk, it can lead to more risk-taking. News implying that a hedge is likely to be loss-making undermines the risk-prevention incentives of the protection seller. This incentive problem limits the capacity to share risks and generates endogenous counterparty risk. Optimal hedging can therefore lead to contagion from news about insured risks to the balance sheet of insurers. Such endogenous risk is more likely to materialize ex post when the ex ante probability of counterparty default is low. Variation margins emerge as an optimal mechanism to enhance risk-sharing capacity. Paradoxically, they can also induce more risk-taking. Initial margins address the market failure caused by unregulated trading of hedging contracts among protection sellers. JEL Classification: G21, G22, D82.
    Keywords: Insurance, moral hazard, counterparty risk, margin requirements, derivatives.
    Date: 2012–01
  3. By: Collier, Benjamin; Skees, Jerry R.
    Abstract: Financial intermediaries [FIs] in developing and emerging economies are poorly equipped to manage natural disasters. These events create losses for FIs, eroding capital reserves and compromising their ability to lend. Portfolio-level insurance against disasters can improve FI management of these events. We model microfinance intermediaries [MFIs] exposed to severe El Niño in Peru that can now insure against this disaster risk. Our analyses suggest that insurance allows these lenders to manage this risk more efficiently and effectively. These risk management improvements can translate into better financial performance, expansion of banking service outreach, lower interest rates, and reduced volatility in access to credit. Based on these analyses, a large MFI in Peru with which we collaborated is now managing its disaster risk using El Niño insurance.
    Keywords: Financial Economics, Public Economics,
    Date: 2012–08
  4. By: Jeffrey Clemens (Stanford Institute for Economic Policy Research)
    Abstract: I study the effect of health insurance expansions on medical innovation. Practitioner dominated innovation (Roberts, 1988) creates an important role for the incentives in “local” payment systems as drivers of medical technology development. I show that, over the 15 years following Medicare and Medicaid’s passage, U.S.-based patenting shifted towards medical equipment by nearly 1.5 percentage points (50 percent) more than foreign patenting. This did not reflect a more general, U.S.-specific trend towards health-sector innovation; no such increase occurred among pharmaceutical patents, the markets for which were unaffected. Subsequent decreases in cost-sharing for all health spending are also associated with increases in U.S.-based patenting relative to foreign patenting in the relevant areas. Back-of-the-envelope calculations suggest that the dynamic effect of U.S. insurance expansions may account for around 25 percent of global medical-equipment innovation and 15 percent of the rise in U.S. health spending in hospitals, physicians’ offices, and other clinical settings from 1960 to 2010.
    JEL: O38 O31 H51 I11
    Date: 2012–06
  5. By: Nolan, Elizabeth; Santos, Paulo
    Abstract: An argument in favor of the development of genetically modified (GM) hybrids is that their presence is considered to be risk decreasing., and hence, insurance premiums for US corn growers who plant approved hybrids have been reduced. In this study we investigate, using a large set of experimental data, whether the presence in a corn hybrid of various combinations of GM traits is likely to affect production variability and downside risk. We estimate a heteroskedastic production function that allows for the variance of yield to change with the level of inputs, and use the residuals of the mean function to estimate the marginal effect of each input on variance and skewness of yield. The results show that the presence of most combinations of GM traits leads to an increase in both yield variability and downside risk.
    Keywords: Production functions, yield, risk, skewness, corn, genetically modified traits., Production Economics, Risk and Uncertainty, C2, Q12, Q16,
    Date: 2012
  6. By: Yaa Akosa Antwi; Asako S. Moriya; Kosali Simon
    Abstract: We study the impact of the recent Affordable Care Act (ACA) provision that required private health insurers to allow older child dependents to stay on parental policies until age 26 using data from the Survey of Income Program Participation (SIPP) spanning August 2008 to November 2011. By comparing outcomes for targeted young adults aged 19-25 to those who are slightly older and slightly younger, before and after the law, we find the ACA substantially reduced uninsurance among young adults. Young adults were 30 percent more likely to be on their parents’ employer policies on average after the staggered implementation commenced in September 2010, compared to before the enactment of the law. This increase in dependent coverage drew from both the uninsured and the otherwise insured. We also find evidence consistent with greater take-up among those with higher marginal benefits and lower marginal costs of obtaining dependent coverage, such as those whose parents already had family employer health insurance policies prior to the law. Dependent coverage increases are also greater for Whites relative to non-Whites, for single individuals relative to married individuals, and for non-students relative to students. We find no statistically significant difference in the impact of the provision on young adults who reside in states with and without some form of prior state dependent coverage mandate.
    JEL: I28
    Date: 2012–06
  7. By: Silvana Stahl (University of Rostock); Stefan Stahl (University of Rostock); Philipp Kasch (University of Rostock)
    Abstract: Riester products recently celebrated their 10th anniversary. Previous studies of their advantages analyzed only partial aspects, focusing either on cost or tax impacts. They yield inconsistent recommendations. The present paper tries to make recommendations based on an equal analysis of cost and tax effects. Our analysis focuses on a decision maker who wants to know if a specific private pension insurance should be bought with or without a Riester subsidy. After a theoretical analysis we carry out a simulation for three types of income. Subsidized Riester contracts seem to be the preferred choice for low income savers or, provided that children are taken into account, for middle income savers. A saver earning a high income is recommended to conclude a non-subsidized retirement contract if he or she has less than three children. The recommendations may be reversed if cost differences between the compared contracts reach a critical level.
    Keywords: Retirement Provisions, Private Pension Insurance, Riester, Taxation, Costs
    JEL: E62 K39
    Date: 2012
  8. By: Sheirin Iravantchi; Mark D. Wenner
    Abstract: The microinsurance market in Latin America is still in its embryonic phase. The purpose of this technical note is to better inform donors, national governments, and insurance companies interested in promoting financial inclusion about how they can accelerate the development of microinsurance markets. Four countries -Brazil, Colombia, Mexico, and Peru- are reviewed to glean lessons learned about paths taken to develop these markets and the interaction of key stakeholders.
    Keywords: Financial Sector :: Financial Markets, Financial Sector :: Financial Services, Economics :: Economic Development & Growth, financial inclusion
    JEL: G22 G28 O57
    Date: 2012–06
  9. By: Raghbendra Jha; Woojin Kang; Hari K. Nagarajan; Kailash C. Pradhan
    Abstract: Using Vulnerability as Expected Utility (VEU) analysis that permits the decomposition of household vulnerability into its components on a unique data set this paper demonstrates that in rural India household vulnerability is most explained by poverty and idiosyncratic components. So far as risk coping strategies go households rely heavily on informal instruments such as their own saving, transfers or capital depletion. However, they also try to cope with covariate risks by participating in government programmes. Further, household consumption is highly covariate with income. This implies that existing informal insurance instruments are not sufficient to protect household consumption against income shocks. Government sponsored coping strategies reduce the idiosyncratic and risk component of vulnerability. Hence, an important policy implication of our analysis is that the government should provide readily accessible and well targeted public safety nets. The existing informal strategy is not very effective as a consumption insurance mechanism. Although the government coping programme is found to reduce vulnerability access to such programmes is constrained. Expansion of government sponsored coping programmes is likely to protect households effectively from negative shocks.
    Keywords: Vulnerability, Poverty, Covariate and Idiosyncratic shocks, REDS data, India
    JEL: C23 C25 C31 I32
    Date: 2012
  10. By: James Marton (Georgia State University); Stephen A. Woodbury (Michigan State University and W.E. Upjohn Institute)
    Abstract: Are early retiree health benefits (RHBs) a form of deferred compensation that binds workers to an employer? Most employers who offer RHBs offer them only to workers who have 10 or more years of tenure with the firm and have reached age 55. Accordingly, workers in firms offering RHBs have an incentive to stay with a firm in the years before they attain eligibility for RHBs, and a greater incentive than otherwise to retire thereafter. We test for the existence of such a pattern of incentives by examining the age-specific relationship between workers’ eligibility for RHBs and retirement. The findings suggest that workers in RHB-offering firms are less likely to retire at ages 50 and 51 than similar workers in firms that do not offer RHBs. Also, RHB-eligible workers aged 60 and 61 are more likely to retire than similar RHB-ineligible workers. Such a pattern is consistent with RHBs acting as part of a delayed-payment contract of the kind described by Lazear (1979, 1981).
    Keywords: Tax Subsidies, Health Insurance, Retirement, Employee Benefits, Deferred Compensation, Compensation Methods
    JEL: H25 I18 J26 J32 M52
    Date: 2012–03

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