nep-ias New Economics Papers
on Insurance Economics
Issue of 2012‒12‒22
eleven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Analyzing the Effects of Insuring Health Risks: On the Trade-off between Short Run Insurance Benefits vs. Long Run Incentive Costs By Cole, Harold; Kim, Soojin; Krueger, Dirk
  2. Prices Matter: Comparing Two Tests of Adverse Selection in Health Insurance By Polimeni, Rachel; Levine, David I.
  3. Essays on pensions, health expectancy and credit insurance. By Zheng, J.
  4. How does deposit insurance affect bank risk ? evidence from the recent crisis By Anginer, Deniz; Demirguc-Kunt, Asli; Zhu, Min
  5. Unemployment insurance design and its effects: evidence from de Uruguayan case By Verónica Amarante; Rodrigo Arim; Andrés Dean
  6. Unmitigated disasters? New evidence on the macroeconomic cost of natural catastrophes By Goetz von Peter; Sebastian von Dahlen; Sweta C Saxena
  7. Protecting workers against unemployment in Uruguay By Verónica Amarante; Rodrigo Arim; Andrés Dean
  8. Effect of Perceptions and Behaviour on Access to and Use of Financial Service: Evidence from South Africa By Annim, Samuel Kobina; Arun, Thankom; Kostov, Philip
  9. Medicare Advantage 2013 Spotlight: Plan Availablity and Premiums. Menlo Park, CA: The Henry J. Kaiser Family Foundation By Marsha Gold; Gretchen Jacobson; Anthony Damico; Tricia Neuman
  10. The Impact of Debt Levels and Debt Maturity on Inflation By Faraglia, Elisa; Marcet, Albert; Oikonomou, Rigas; Scott, Andrew
  11. A contribution in stochastic control applied to finance and insurance. By Moreau, Ludovic

  1. By: Cole, Harold; Kim, Soojin; Krueger, Dirk
    Abstract: This paper constructs a dynamic model of health insurance to evaluate the short- and long run effects of policies that prevent firms from conditioning wages on health conditions of their workers, and that prevent health insurance companies from charging individuals with adverse health conditions higher insurance premia. Our study is motivated by recent US legislation that has tightened regulations on wage discrimination against workers with poorer health status (Americans with Disability Act of 2009, ADA, and ADA Amendments Act of 2008, ADAAA) and that will prohibit health insurance companies from charging different premiums for workers of different health status starting in 2014 (Patient Protection and Affordable Care Act, PPACA). In the model, a trade-off arises between the static gains from better insurance against poor health induced by these policies and their adverse dynamic incentive effects on household efforts to lead a healthy life. Using household panel data from the PSID we estimate and calibrate the model and then use it to evaluate the static and dynamic consequences of no-wage discrimination and no-prior conditions laws for the evolution of the cross-sectional health and consumption distribution of a cohort of households, as well as ex-ante lifetime utility of a typical member of this cohort. In our quantitative analysis we find that although a combination of both policies is effective in providing full consumption insurance period by period, it is suboptimal to introduce both policies jointly since such policy innovation induces a more rapid deterioration of the cohort health distribution over time. This is due to the fact that combination of both laws severely undermines the incentives to lead healthier lives. The resulting negative effects on health outcomes in society more than offset the static gains from better consumption insurance so that expected discounted lifetime utility is lower under both policies, relative to only implementing wage nondiscrimination legislation.
    Keywords: Health; Incentives; Insurance; No-Prior-Condition-Legislation; Wage Discrimination
    JEL: E61 H31 I18
    Date: 2012–12
  2. By: Polimeni, Rachel; Levine, David I.
    Abstract: A standard test for adverse selection in health insurance examines whether people with characteristics predicting high health care utilization are more likely to buy insurance (or buy more generous nsurance). George Akerlof’s theory of adverse selection suggests a test based on prices: those who purchase insurance at the regular price will have higher expected utilization than those buying insurance when offered a deeply discounted price. Both tests provide (different) lower bounds on self-selection. We use a randomly allocated coupon for deeply discounted health insurance in rural Cambodia coupled with a longitudinal survey to test for adverse selection. While the standard test can show only a small amount of self-selection, the Prices test shows vastly more self-selection – providing a much more informative lower bound.
    Keywords: Business, Management, Marketing, and Related Support Services, Human Resources Management and Services, D82, I13, Asymmetric and Private Information, Health Insurance
    Date: 2012–12–12
  3. By: Zheng, J. (Tilburg University)
    Abstract: The choice of payment terms has increasingly become more important in determining the success of exporting transactions. While exporters often use Open Account (OA) terms to secure international contracts and to expand export levels, these terms in turn make them face more non-payment risks. In Export Credit Insurance and Trade Promotion, we present a theoretical model showing the competitiveness of OA terms in international trade, and the risk-reducing as well as export-enhancing role played by export credit insurance programs. Our theoretical analysis shows that, when exporters are risk averse, these programs are always effective without breaking the legal and financial obligations. Using Chinese export and insurance data, both static and dynamic models show a positive and statistically significant export-promoting effect of export credit insurance in China. The insurance effect across income groups also suggests the success of export credit insurance in diversifying export destinations.
    Date: 2012
  4. By: Anginer, Deniz; Demirguc-Kunt, Asli; Zhu, Min
    Abstract: Deposit insurance is widely offered in a number of countries as part of a financial system safety net to promote stability. An unintended consequence of deposit insurance is the reduction in the incentive of depositors to monitor banks, which leads to excessive risk-taking. This paper examines the relation between deposit insurance and bank risk and systemic fragility in the years leading to and during the recent financial crisis. It finds that generous financial safety nets increase bank risk and systemic fragility in the years leading up to the global financial crisis. However, during the crisis, bank risk is lower and systemic stability is greater in countries with deposit insurance coverage. The findings suggest that the"moral hazard effect"of deposit insurance dominates in good times while the"stabilization effect"of deposit insurance dominates in turbulent times. Nevertheless, the overall effect of deposit insurance over the full sample remains negative since the destabilizing effect during normal times is greater in magnitude compared with the stabilizing effect during global turbulence. In addition, the analysis finds that good bank supervision can alleviate the unintended consequences of deposit insurance on bank systemic risk during good times, suggesting that fostering the appropriate incentive framework is very important for ensuring systemic stability.
    Keywords: Banks&Banking Reform,Debt Markets,Deposit Insurance,Emerging Markets,Bankruptcy and Resolution of Financial Distress
    Date: 2012–12–01
  5. By: Verónica Amarante (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Rodrigo Arim (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Andrés Dean (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: Abundant empirical evidence both for developed and developing countries finds that the design of unemployment insurance program may have important consequences on labor market outcomes. In particular, the design of UI system can affect both unemployment duration and employment outcomes. Recent changes in the design of the Uruguayan UI have implied modifications that may alter various labor market outcomes. In particular, we assess the impacts of the following modifications: the duration of UI was reduced from six to four months in the case of temporary laid off workers (suspension); the scheme of payments was changed for permanent laid off workers (job loss). Instead of a lump sum during six months, a decreasing scheme of payments was installed; and the duration of the UI can be extended up to one year for workers 50 or older.
    Keywords: Unemployment insurance, Impact evaluation
    JEL: J65 J68
    Date: 2012–09
  6. By: Goetz von Peter; Sebastian von Dahlen; Sweta C Saxena
    Abstract: This paper presents a large panel study on the macroeconomic consequences of natural catastrophes and analyzes the extent to which risk transfer to insurance markets facilitates economic recovery. Our main results are that major natural catastrophes have large and signi cant negative e ects on economic activity, both on impact and over the longer run. However, it is mainly the uninsured losses that drive the subsequent macroeconomic cost, whereas sufficiently insured events are inconsequential in terms of foregone output. This result helps to disentangle conicting ndings in the literature, and puts the focus on risk transfer mechanisms to help mitigate the macroeconomic costs of natural catastrophes.
    Keywords: natural catastrophes, disasters, economic growth, insurance, risk transfer, reinsurance, recovery, development
    Date: 2012–12
  7. By: Verónica Amarante (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Rodrigo Arim (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Andrés Dean (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: This paper considers the main institutional features of the Uruguayan labor market and its recent evolution, with a focus on unemployment. The main policies aimed at protecting workers against unemployment are analyzed. Using administrative data from social security records, the paper studies the dynamics of the labor market. Particularly examined are inflows and outflows from the formal labor market, as well as the effect, in terms of earnings loss, of episodes out of the formal labor market. Finally, an impact evaluation of recent changes in the unemployment insurance program is presented.
    Keywords: Unemployment insurance, Entry and exit rates, Earnings loss, Impact evaluation
    JEL: J01 J08
    Date: 2012–09
  8. By: Annim, Samuel Kobina (University of Central Lancashire); Arun, Thankom (University of Central Lancashire); Kostov, Philip (University of Central Lancashire)
    Abstract: This study investigates the effect of financial perception and behaviour on; (a) general accounts and services, (b) investment/savings and (c) insurance/assurance Using FinScope dataset from South Africa over the period 2003 to 2009,ordered probit, generalized ordered probit and pseudo panel micro-econometric techniques have been employed. Results based on all three estimations support the hypothesis that financial perception has a greater effect on the decision to access and use general accounts and services. The cross section and pooled models confirm the hypothesis that the effect of financial behaviour is greater than financial perception when making decisions on the take-up and use of investment financial services. It is also observed that the degree of responsiveness of financial perception on access to, and use of financial services decreases as the depth of usage deepens from basic to advance levels of financial products. In a policy context, targeting demand-side factors to increase access to and use of financial services should be financial type and level specific. Furthermore, the approach should be based on an understanding of the experiences of borrowers.
    Keywords: financial, perception, behaviour, general accounts, investment, insurance, South Africa
    JEL: O16 O17 O55
    Date: 2012–11
  9. By: Marsha Gold; Gretchen Jacobson; Anthony Damico; Tricia Neuman
    Keywords: Medicare Advantage, Plan Availability, Premiums, Medicare Policy
    JEL: I
    Date: 2012–12–30
  10. By: Faraglia, Elisa; Marcet, Albert; Oikonomou, Rigas; Scott, Andrew
    Abstract: In the context of a sticky price DSGE model subject to government expenditure and preference shocks where governments issue only nominal non-contingent bonds we examine the implications for optimal inflation of changes in the level and average maturity of government debt. We analyse these relationships under two different institutional settings. In one case government pursues optimal monetary and fiscal policy in a coordinated way whereas in the alternative we assume an independent monetary authority that sets interest rates according to a Taylor rule and where the fiscal authority treats bond prices as a given. We identify the main mechanisms through which inflation is affected by debt and debt maturity (a real balance effect and an implicit profit tax) and also study additional channels through which the government achieves fiscal sustainability (tax smoothing, interest rate twisting and endogenous fluctuations in bond prices). In the case of optimal coordinated monetary and fiscal policy we find that the persistence and volatility of inflation depends on the sign, size and maturity structure of government debt. High levels of government debt do lead to higher inflation and longer maturity debt leads to more persistent inflation. However even in the presence of modest price stickiness the role of inflation is minor with the majority of fiscal adjustment achieved through changes in taxes and the primary surplus. However in the case of an independent monetary authority where debt management, monetary policy and fiscal policy are not coordinated then inflation has a much more substantial and more persistent role to play. Inflation is higher, more volatile and more persistent especially in response to preference shocks and plays a major role in achieving fiscal solvency.
    Keywords: fiscal insurance; fiscal sustainability; government debt; inflation; interest rates; maturity
    JEL: E52 E62 H21 H63
    Date: 2012–12
  11. By: Moreau, Ludovic
    Abstract: Le but de cette thèse est d'apporter une contribution à la problématique de valorisation de produits dérivés en marchés incomplets. Nous considérons tout d'abord les cibles stochastiques introduites par Soner et Touzi (2002) avant de traiter le problème de sur-réplication, et récemment étendues afin de traiter des approches plus générales par Bouchard, Elie et Touzi (2009). Nous généralisons le travail de Bouchard et al à un cadre plus général où les diffusions sont sujettes à des sauts. Nous devons considérer dans ce cas des contrôles qui prennent la forme de fonctions non bornées, ce qui impacte de façon non triviale la dérivation des EDP correspondantes. Notre deuxième contribution consiste à établir une version des cibles stochastiques qui soit robuste à l'incertitude de modèle. Dans un cadre abstrait, nous établissons une version faible du principe de programmation dynamique géométrique de Soner et Touzi (2002), et nous dérivons, dans un cas d'EDS controllées, l'équation aux dérivées partielles correspondantes, au sens des viscosités. Nous nous intéressons ensuite à un exemple de couverture partielle sous incertitude de Knightian. Finalement, nous nous concentrons sur le problème de valorisation de produits dérivées hybrides (produits dérivés combinant finance de marché et assurance). Nous cherchons plus particulièrement à établir une condition suffisante sous laquelle une règle de valorisation (populaire dans l'industrie), consistant à combiner l'approches actuarielle de mutualisation avec une approche d'arbitrage, soit valable.
    Abstract: The aim of this thesis is to investigate some solutions to the pricing of contingent claims in incomplete markets. We first consider the stochastic targetintroduced by Soner and Touzi (2002) for the general super-replication problem, and extended by Bouchard, Elie and Touzi (2009) in order to deal with more general approaches. We first generalize the work of Bouchard et al to a framework where the discusions are subject to jumps. In our particular settings, we need to consider a control taking the form of unbounded maps, which has non-trivial impacts on the derivation of the associated PDE. Our second contribution consists in establishing a version of stochastic target problems which is robust to model uncertainty. We provide, in a general setup, a relaxed geometric dynamic programming principle for this problem and derive, for the case of a controlled SDE, the corresponding dynamic programming equation in the sense of viscosity solutions. We consider an example of partial hedging under Knightian uncertainty. Finally, we focus on the problem of pricing hybrid claims. More specifically, we intend to give a sufficient condition for a (very popular) pricing rule, combining actuarial diversification with arbitrage free replication arguments, to hold.
    Keywords: marchés incomplets; Jeux différentiels; Risque;
    JEL: C73 G13 D52
    Date: 2012–09

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