nep-ias New Economics Papers
on Insurance Economics
Issue of 2012‒09‒03
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Health Expenditures Risk, Purchase of Private Health Insurance, and Precautionary Saving in Turkey By Evren Ceritoglu
  2. Home Production and the Optimal Rate of Unemployment Insurance By Temel Taskin
  3. The Impact of a Public Option in the Health Insurance Market By Barbos, Andrei; Deng, Yi
  4. Economic Analysis of Insurance Fraud By Pierre Picard
  5. A Comparative Study of Risk Management in Agriculture under Climate Change By Jesús Antón; Shingo Kimura; Jussi Lankoski; Andrea Cattaneo
  6. The optimal size of the European Stability Mechanism: A cost-benefit analysis By Daniel Kapp

  1. By: Evren Ceritoglu
    Abstract: The precautionary saving hypothesis proposes that purchase of private health insurance diminishes household saving, since health insurance coverage decreases the possibility of unexpected out-of-pocket health expenditures. The empirical analysis is realised using the TURKSTAT Household Budget Surveys between 2003 and 2010 for the Turkish economy for this purpose. The econometric results from the Two-Stage Probit Least Squares (2SPLS) regressions indicate that there is a negative and statistically significant relationship between household saving and voluntary health insurance, which includes purchases of private health insurance. Moreover, the relationship between household saving and green-card ownership, which is distributed to the poorest individuals without social security coverage, is negative and statistically significant. As a result, the empirical analysis provides evidence in favour of the precautionary saving hypothesis.
    Keywords: health expenditures risk, precautionary saving
    JEL: D12 I11
    Date: 2012
  2. By: Temel Taskin
    Abstract: In this paper, we incorporate home production into a quantitative model of unemployment and show that realistic levels of home production have a signifi- cant impact on the optimal unemployment insurance rate. Motivated by recently documented empirical facts, we augment an incomplete markets model of unem- ployment with a home production technology, which allows unemployed workers to use their extra non-market time as partial insurance against the drop in income due to unemployment. In the benchmark model, we find that the optimal replacement rate in the presence of home production is roughly 40% of wages, which is 40% lower than the no home production model’s optimal replacement rate of 65%. The 40% optimal rate is also close to the estimated rate in practice. The fact that home production makes a significant difference in the optimal unemployment insurance rate is robust to a variety of parameterizations and alternative model environments.
    Keywords: Unemployment insurance, home production, incomplete markets, self-insurance
    JEL: D13 E21 J65
    Date: 2012
  3. By: Barbos, Andrei; Deng, Yi
    Abstract: We develop a game-theoretical model to examine the implications of the introduction of a non-profit "public option" in the U.S. health insurance market, in which a continuum of heterogeneous consumers, each facing unknown medical expenditures and differing in their expectations of such expenditures, have to choose between a profit-maximizing private insurance plan and a social-welfare-maximizing public plan. We then estimate and calibrate the model based on the U.S. data and quantify the Nash equilibrium of the market structure. Empirical results suggest that private insurer will still represent a significant part of the insurance market and generate a substantially positive profit.
    Keywords: Public Option; Health Insurance Markets
    JEL: I11 L32 L21 L10
    Date: 2012–06–15
  4. By: Pierre Picard (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)
    Abstract: We survey recent developments in the economic analysis of insurance fraud. The paper first sets out the two main approaches to insurance fraud that have been developped in the literature, namely the costly state verification and the costly state falsification. Under costly state verification, the insurer can verify claims at some cost. Claims' verification may be deterministic or random, and it can be conditioned on fraud signals perceived by insurers. Under costly state falsification, the policyholder expends resources for the building-up of his or her claim not to be detected. We also consider the effects of adverse selection, in a context where insurers cannot distinguish honest policyholders from potential defrauders, as well as the consequences of credibility constraints on anti-fraud policies. Finally, we focus attention on the risk of collusion between policyholders and insurance agents or service providers.
    Keywords: Fraud, audit, verification, falsification, collusion, build-up.
    Date: 2012–08–27
  5. By: Jesús Antón; Shingo Kimura; Jussi Lankoski; Andrea Cattaneo
    Abstract: Climate change affects the mean and variability of weather conditions and the frequency of extreme events, which to a great extent determines the variability of production and yields. This paper reviews the scientific literature on the impacts of climate change on yield variance and investigates their implications for the demand of crop insurance and effectiveness of different farm strategies and policy measures using crop farm data in Australia, Canada and Spain. A microeconomic farm level model is calibrated to different types of farms and used to simulate the responses and impacts of four policy measures: ex post disaster payments and three types of crop insurance (individual yields, area-based yield and weather index). The strong uncertainties about climate change are captured in a set of seven scenarios covering different assumptions about the scope of climate change (no change, marginal change, and high occurrence of extreme events), and farmers’ adaptation response (no adaptation, diversification, and structural adaptation). Policy decision making under these uncertainties is analysed using a standard Bayesian probabilistic approach, but also using other criteria that look for robust second best choices (MaxiMin and Satisficing criteria).
    Keywords: uncertainty, climate change, adaptation, Crop insurance, second best policies
    JEL: D81 G22 Q18 Q54
    Date: 2012–07
  6. By: Daniel Kapp
    Abstract: This study presents a core-periphery model to determine the optimal size of the European Stability Mechanism (ESM), building on Jeanne and Ranciere (2011). While the periphery is subject to a probability of losing access to external credit, the core's incentive for setting up an ESM stems exclusively from the spillover effects present in the case of periphery default. The model develops regional best response functions, determining a set of feasible ranges for the total ESM size, given optimal regional contributions. The model is then calibrated to the European Economic and Monetary Union. If costs from default are reasonably high, the probability of the periphery not having access to external credit is sufficiently large, and spillover effects to the core are present, both the core and the periphery have an interest in contributing to the ESM. Calibration and sensitivity analysis suggest that the optimal ESM size is between the current and twice the size of the agreed-upon ESM.
    Keywords: ESM; ESFR; Financial Crisis; Insurance
    JEL: G01 G17 G22 G32 C15
    Date: 2012–08

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