nep-ias New Economics Papers
on Insurance Economics
Issue of 2012‒11‒17
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Health Insurance Reform: The Impact of a Medicare Buy-In By Gary D. Hansen; Minchung Hsu; Junsang Lee
  2. Incentives That Saved Lives: Government Regulation of Accident Insurance Associations in Germany, 1884-1914 By Guinnane, Timothy; Streb, Jochen
  3. A rank-dependent utility model of uncertain lifetime, time consistency and life insurance By Nicolas Drouhin
  4. Risk as Impediment to Privatization? The Role of Collective Fields in Extended Agricultural Households By Matthieu Delpierre; Catherine Guirkinger; Jean-Philippe Platteau
  5. The Narrative Communications Project: Takeaway Findings on a Message-Framing Approach. Princeton, NJ: Mathematica Policy Research and Los Altos, CA: The David & Lucile Packard Foundation By Sheila Hoag; Victoria Peebles; Christopher Trenholm; Gene Lewit
  6. Risk Management Instruments for Food Price Volatility and Weather Risk in Latin America and the Caribbean: The Use of Risk Management Instruments By Anne G. Murphy; Jason Hartell; Víctor Cárdenas; Jerry R. Skees

  1. By: Gary D. Hansen; Minchung Hsu; Junsang Lee
    Abstract: The steady state general equilibrium and welfare consequences of health insurance reform are evaluated in a calibrated life-cycle economy with incomplete markets and endogenous labor supply. Individuals face uncertainty each period about their future health status, medical expenditures, labor productivity, access to employer provided group health insurance, and the length of their life. In this environment, incomplete markets and adverse selection, which restricts the type of insurance contracts available in equilibrium, creates a potential role for health insurance reform. In particular, we consider a policy reform that would allow older workers (aged 55-64) to purchase insurance similar to Medicare coverage. We find that adverse selection eliminates any market for a Medicare buy-in if it is offered as an unsubsidized option to individual private health insurance. Hence, we compare the equilibrium properties of the current insurance system with those that obtain with an optional buy-in subsidized by the government, as well as with several types of health insurance mandates.
    JEL: E6 H51
    Date: 2012–11
  2. By: Guinnane, Timothy (Yale University); Streb, Jochen (University of Mannheim)
    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 experience-rating 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.
    JEL: G22 H55 N33
    Date: 2012–08
  3. By: Nicolas Drouhin (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, ENS Cachan - Ecole Normale Supérieure de Cachan - École normale supérieure de Cachan - ENS Cachan)
    Abstract: In a continuous time life cycle model of consumption with uncertain lifetime and no ''pure time preference", we use a non-parametric specification of rank dependent utility theory to characterize the preferences of the agents. From normative point of view, the paper discusses the implication of adding an axiom of time consistency to the former model. We prove that time consistency holds for a much wider class of probability weighting functions than the identity one characterizing the expected utility model. This special class of probability weighting functions provides foundations for a constant subjective rate of discount which interact multiplicatively with the instantaneous conditional probability of dying. We show that even if agent are time consistent, life annuities no more provide perfect insurance against the risk to live.
    Keywords: intertemporal choice; life cycle theory of consumption and saving; uncertain lifetime; life insurance; time consistency; rank dependent utility.
    Date: 2012–10–31
  4. By: Matthieu Delpierre (University of Louvain); Catherine Guirkinger (Center for Research in the Economics of Development, University of Namur); Jean-Philippe Platteau (Center for Research in the Economics of Development, University of Namur)
    Abstract: As in the case of agricultural cooperatives, collective fields in extended agricultural households act as an insurance device, by redistributing income between household members. At the same time they entail inefficiencies arising from the incentives to free ride on co-workers efforts. Privatization solves the latter problem but comes at a cost of lower risk-sharing (Carter, 1987). The classic analysis of the trade-off between efficiency and risk-sharing rules out another major risk-sharing mechanism, namely voluntary interpersonal transfers. This paper is a first attempt to merge the two insurance mechanisms: collective production, which is plagued by free riding and income transfers, which are hampered by limited commitment. Privatization of land is shown to interact with incentives to abide by the insurance agreement, so that the tradeoff between risk-sharing and production efficiency may or may not be maintained with income transfers. We show that an increase in the value of the household members’ exit option or a decrease in patience decreases the optimal rate of privatization. With the help of numerical simulations we argue that households of greater size are also more likely to privatize land.
    Keywords: risk-sharing, land, family, privatization
    JEL: D13 O12 Q12 Q15
    Date: 2012–11
  5. By: Sheila Hoag; Victoria Peebles; Christopher Trenholm; Gene Lewit
    Keywords: IAC, Insuring America's Children, Narrative Project, Insurance Coverage
    JEL: I
    Date: 2012–07–30
  6. By: Anne G. Murphy; Jason Hartell; Víctor Cárdenas; Jerry R. Skees
    Abstract: This report examines some of the implications of price risk and volatility, and weather risks in the LAC region that are important threats to already vulnerable populations. It considers the advantages and limitations of a set of financial instruments for managing these risks; and identifies potential mechanisms for addressing concerns about the socioeconomic consequences of price and weather volatility. In reviewing the innovations that are being tested in the LAC region and around the world, what is striking is that they appear to be disparate and largely piecemeal solutions to the problems of price and natural disaster risk management - they are not integrated. A more efficient and holistic solution should draw upon the recent efforts of coordination among countries within regions. The importance of risk aggregation and pooling combined with the comparative advantage of International Financial Institutions to access capital and work in a regional context, suggests a strategy to develop a fully multicountry approach to risk management. This strategy calls for establishing a Regional Asset Management Platform (RAMP) that integrates central stakeholders and develops pricing and measurement tools for extreme weather risk management and price volatility in a more efficient fashion. Global drivers of price volatility for major commodities can be managed using international futures exchange markets to some extent. However, regional climate anomalies will also mean that individual countries can suffer price volatility that represents a basis risks when using international futures markets. Thus, combining risk transfer products for regional climate anomalies with the use of careful hedging strategies for global volatility may offer better risk management strategies for either lower than expected prices that adversely affect producers or higher than expected prices that adversely affect consumers.
    Keywords: Environment & Natural Resources :: Disasters, Financial Sector :: Financial Markets, Financial Sector :: Financial Risk, Agriculture & Food Security :: Plant, Animal, & Food Production, Commodity price risk, weather index insurance, agriculture, food security
    Date: 2012–09

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