nep-ias New Economics Papers
on Insurance Economics
Issue of 2012‒10‒13
five papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Incentives that Saved Lives: Government Regulation of Accident Insurance Associations in Germany, 1884–1914 By Timothy Guinnane; Jochen Streb
  2. The Problem of the Uninsured By Isaac Ehrlich; Yong Yin
  3. The Effect of Publicly Provided Health Insurance on Academic Performance in Mexico By Carlo Alcaraz; Daniel Chiquiar; María José Orraca; Alejandrina Salcedo
  4. Design of optimum private insurance schemes as a means to reduce water overexploitation during drought events. A case study in Campo de Cartagena (Segura River Basin, Spain) By Perez Blanco, Carlos Dionisio; Gomez Gomez, Carlos Mario
  5. Social Insurance: Connecting Theory to Data By Raj Chetty; Amy Finkelstein

  1. By: Timothy Guinnane; Jochen Streb
    Abstract: The German government introduced compulsory accident insurance for industrial firms in 1884. This insurance scheme was one of the main pillars of Bismarck’s famous social insurance system. The accident-insurance system achieved only one of its intended goals: it successfully compensated workers and their survivors for losses due to accidents. The accident-insurance system was less successful in limiting the growth of work-related accidents, although that goal had been a reason for the system’s creation. We trace the failure to stem the growth of accidents to faulty incentives built into the 1884 legislation. The law created mutual insurance groups that used an experiencerating system that stressed group rather than firm experience, leaving firms with little hope of saving on insurance contributions by improving the safety of their own plants. The government regulator increasingly stressed the imposition of safety rules that would force all firms to adopt certain safety practices. Econometric analysis shows that even the flawed tools available to the insurance groups were powerful, and that more consistent use would have reduced industrial accidents earlier and more extensively.
    Keywords: Social insurance; accident insurance; workman‘s compensation; regulation
    JEL: N33 G22 H55
    Date: 2012–08
  2. By: Isaac Ehrlich; Yong Yin
    Abstract: The problem of the uninsured – those eschewing the purchase of health insurance policies – cannot be fully understood without considering informal alternatives to market insurance called “self-insurance” and “self-protection”, including the publicly and charitably-financed safety-net health care system. This paper tackles the problem of the uninsured by formulating a “full-insurance” paradigm that includes all 4 measures of insurance as interacting components, and analyzing their interdependencies. We apply both a baseline and extended versions of the model through calibrated simulations to estimate the degree to which these non-market alternatives can account for the fraction of the non-elderly adults who are uninsured, and estimate their behavioral and policy ramifications. Our results indicate that policy analyses that do not consider the role of self-efforts to avoid health losses can grossly distort the success of the ACA mandate to insure the uninsured and to improve the health and welfare outcomes of the previously uninsured.
    JEL: G22 H42 I28
    Date: 2012–10
  3. By: Carlo Alcaraz; Daniel Chiquiar; María José Orraca; Alejandrina Salcedo
    Abstract: In this paper we study the causal effect of a large expansion of publicly provided health insurance on children's academic performance using the case of Mexico. In general, access to free health insurance could improve education outcomes directly by making household members healthier or indirectly by raising the amount of resources available for education expenses. Using a panel of municipalities from 2007 to 2009, we find that the expansion of the Mexican public health insurance program, Seguro Popular, had a positive, statistically significant effect on standardized test scores of primary school children.
    Keywords: Health insurance, Public health, Seguro Popular, Mexico, Education, Test scores.
    JEL: I15 I25 I38
    Date: 2012–09
  4. By: Perez Blanco, Carlos Dionisio; Gomez Gomez, Carlos Mario
    Abstract: Water is a key input in the production of many goods and services and under certain conditions can become a critical limiting factor with significant impacts on regional development. This is the case of many agricultural European Mediterranean basins, where water deficit during drought events is partially covered by illegal abstractions, mostly from aquifers, which are tolerated by the authorities. Groundwater overexploitation for irrigation has created in these areas an unprecedented environmental catastrophe that threatens ecosystems sustainability, urban water supply and the current model of development. Commercial drought insurance systems have the potential to introduce the necessary incentives to reduce overexploitation during drought events and the high costs of the drought indemnity paid by the government. This paper develops a methodology to obtain this socially desirable basic risk premium based on concatenated stochastic models. The methodology is applied to the agricultural district of Campo de Cartagena (Segura River Basin, Spain). Results show that the basic premiums in a hypothetic commercial drought insurance market would be reasonable and the expected environmental outcomes significant.
    Keywords: Drought insurance, stochastic models, groundwater, agriculture, Drought Management Plan, Crop Production/Industries, Risk and Uncertainty, Q15, Q18, Q25, Q51, Q58,
    Date: 2012–04
  5. By: Raj Chetty; Amy Finkelstein
    Abstract: We survey the literature on social insurance, focusing on recent work that has connected theory to evidence to make quantitative statements about welfare and optimal policy. Our review contains two parts. We first discuss motives for government intervention in private insurance markets, focusing primarily on selection. We review the original theoretical arguments for government intervention in the presence of adverse selection, and describe how recent work has refined and challenged the conclusions drawn from early theoretical models. We then describe empirical work that tests for selection in insurance markets, documents the welfare costs of this selection, and analyzes the welfare consequences of potential public policy interventions. In the second part of the paper, we review work on optimal social insurance policies, which are designed to maximize expected utility taking into account the costs of moral hazard. We discuss formulas for the optimal level of insurance benefits in terms of empirically estimable parameters. We then consider the consequences of relaxing the key assumptions underlying these formulas, e.g. by allowing for fiscal externalities or behavioral biases. We also summarize recent work on other dimensions of optimal policy, including mandated savings accounts and the optimal path of benefits. Finally, we discuss the key challenges that remain in understanding the optimal design of social insurance policies.
    JEL: H5
    Date: 2012–10

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