nep-ias New Economics Papers
on Insurance Economics
Issue of 2013‒01‒07
seventeen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Effects of Disability Insurance: Evidence From Social Security's Disabled-Widow Program By Perry Singleton
  2. The 2012 US Drought Event and its Impact on the Crop Insurance Industry By Vergara, Oscar; Zuba, Gerhard
  3. The Social Dilemma of Microinsurance: A Framed Field Experiment on Free-Riding and Coordination By Wendy Janssens
  4. More on the optimal demand for long-term care insurance By Albane Tarnaud; Hervé Leleu; David Crainich
  5. The insurance value of forests in supplying climate regulation By Eugenio Figueroa B.; Roberto Pasten C.
  6. Is Longer Unemployment Rewarded with Longer Job Tenure? By Kohara, Miki; Sasaki, Masaru; Machikita, Tomohiro
  7. Enrolling the Self-Employed in Mandatory Health Insurance in Colombia: are we missing other factors? By Alejandro Arrieta; Ariadna García Prado; Giota Panopoulou
  8. Benefit Morale and Cross-Country Diversity in Sick Pay Entitlements By Daniel Arnold
  9. Mutual Insurance Networks in Communities By Pascal Billand; Christophe Bravard; Sudipta Sarangi
  10. Tax competition and the move from insurance to assistance. By Michaël Zemmour
  11. Insurance risk transfer and categorization of reinsurance contracts By Gurenko, Eugene N.; Itigin, Alexander; Wiechert, Renate
  12. The RAND Health Insurance Experiment, Three Decades Later By Aviva Aron-Dine; Liran Einav; Amy Finkelstein
  13. Public Health Insurance Expansions and Hospital Technology Adoption By Seth Freedman; Haizhen Lin; Kosali Simon
  14. Medicaid insurance in old age By Mariacristina De Nardi; Eric French; John Bailey Jones
  15. Household Search and the Aggregate Labor Market By Mankart, Jochen; Oikonomou, Rigas
  16. The effect of disability insurance receipt on labor supply: a dynamic analysis By Eric French; Jae Song
  17. Care & cure combined: Using simulation to develop organization design theory for health care processes. By Pieters, A.; Oorschot, K.E. van; Akkermans, H.A.

  1. By: Perry Singleton (Center for Policy Research, Maxwell School, Syracuse University, Syracuse, NY 13244-1020)
    Abstract: This study measures the effect of disability insurance on labor supply and health insurance coverage. The effect is identified by a policy in 1990 that increased the generosity of Social Security’s disabled-widow program. Using data from the Current Population Survey, the results suggest that, in this context, disability benefits led to a one-to-one decline in labor force participation, employment, and private insurance coverage. The results imply that the demand for disability benefits may not reflect a latent demand for public health insurance. Key Words: disability insurance, health insurance, labor force participation, Social Security, widows JEL No. H55, J20
    Date: 2012–10
  2. By: Vergara, Oscar; Zuba, Gerhard
    Abstract: This article describes the meteorological factors that caused the extent of the 2012 US drought event and its financial impact on the crop insurance industry
    Keywords: Drought, MPCI, crop insurance, AWI, Crop Production/Industries, Research Methods/ Statistical Methods, Risk and Uncertainty, Q14, Q54,
    Date: 2012–11–13
  3. By: Wendy Janssens (VU University Amsterdam)
    Abstract: This paper analyzes free-riding and coordination problems in microinsurance. Our proposition is that the demand for insurance suffers from a social dilemma when formal insurance is introduced in existing risk-sharing networks. Less risk averse individuals offered welfare-improving insurance are tempted to free-ride on the enrollment of their network members while the more risk averse may fail to coordinate. This results in suboptimal demand. Group insurance binds both types to the social optimum. A framed laboratory experiment in Tanzania elicits demand for group versus individual insurance among microcredit clients who typically share risk through joint liability. The experiment demonstrates substantial free-riding but only limited coordination failures. These findings extend the literature on strategic decisions in the presence of a public good and provide a potential explanation for the low take-up of microinsurance.
    Keywords: Framed field experiment; micro health insurance; microfinance; risk-sharing; public good game
    JEL: D71 G21
    Date: 2012–12–18
  4. By: Albane Tarnaud (IESEG School of Management (LEM-CNRS)); Hervé Leleu (CNRS-LEM and IESEG School of Management); David Crainich (CNRS-LEM and IESEG School of Management)
    Keywords: Data envelopment analysis; Risk management; Investment analysis
    JEL: D81 C44
    Date: 2012–12
  5. By: Eugenio Figueroa B.; Roberto Pasten C.
    Abstract: This brief paper proposes an analytical method for estimating the economic value of forest ecosystems in supplying climate regulation. If, as argued by several authors, forests ecosystems serve as hedging against climatic risk, then natural ecosystems may act as substitutes for market insurance. This ecosystem service of climate regulation can be economically valued by the marginal reduction in the willingness of risk-averse individuals to pay to avoid risk. We formally develop this novel methodology. As an illustration, we provide an estimate of the insurance value of climate regulation provided by forests using data on insurance premiums paid by local Chilean farmers. The insurance value of climate regulation is estimated to be approximately USD 0.0733 per hectare of forest. The framework that is proposed in this paper is useful and relevant for the cost-benefit analysis of natural resource conservation investments.
    Date: 2012–12
  6. By: Kohara, Miki (Osaka University); Sasaki, Masaru (Osaka University); Machikita, Tomohiro (Institute of Developing Economies (IDE-JETRO))
    Abstract: This paper examines whether or not a prolonged unemployment period can raise the quality of job matching after unemployment. We focus on job tenure as an indicator of a good quality job match after unemployment. We match two sets of Japanese administrative data compiled by the public employment security offices: one includes information about the circumstances of job seekers receiving unemployment insurance, and the other includes information about job seekers applying for jobs. We first show a negative relationship between unemployment duration and the subsequent job duration. Restricting the sample to job seekers who changed search behaviors in the final 59 days before expiration of unemployment insurance, we secondly show an even greater negative effect of unemployment duration on the following job duration. The importance lies not only in the duration of unemployment. If job seekers keep a high reservation wage and a low search intensity because of the benefits of unemployment insurance, and change them in response to the expiration of insurance, prolonged unemployment will result in short job duration after unemployment.
    Keywords: unemployment duration, unemployment insurance, job search, job stability, administrative data, Japan
    JEL: J64 J65 J68
    Date: 2012–12
  7. By: Alejandro Arrieta; Ariadna García Prado (Departamento de Economía-UPNA); Giota Panopoulou
    Abstract: We assess the impact that Colombia’s 1993 health sector reform had on the enrollment of self-employed workers in mandatory social health insurance scheme, with a especial focus on the independent contractors. This group grew dramatically in the form of workers cooperatives between 1993 and 2003, becoming a source of self-employed evasion and a way to disguised employment. We use two national-level Living Standards Measurement Surveys conducted in Colombia in 1997 and 2003, and follow a methodology that corrects for sample selection, decomposing health insurance coverage variation into changes attributed to the reform and to the characteristics of independent contractors. We find that: (i) Between 1997 and 2003, enrollment increased in 28 percentage points reaching an insurance rate of 62%, still below the reform goal of 80%, (ii) enrollment of independent contractors in 1997 was only 35% (compared to 50%) after adjusting by the selection bias due to disguised employment, (ii) the new legislation and stringent monitoring implemented in 2003 to cope with evasion seem to be effective since the sample selection due to disguised employment was not statistically significant in 2003. Addressing the interaction of the labor market with the health reform, as well as, accounting for the heterogeneity within the self-employed group are the main contributions of this paper to the literature on health insurance reforms in developing countries.
    Keywords: Self-employed, worker cooperatives, health insurance, Colombia.
    JEL: D24 I12 I18
    Date: 2012
  8. By: Daniel Arnold (Institute for Labour Law and Industrial Relations in the EU, University of Trier)
    Abstract: This paper analyzes the impact of a country’s level of benefit morale on generosity of sick pay entitlements by means of a political economy model and an empirical investigation. Higher benefit morale reduces the incidence of absence. On the one hand, this makes insurance cheaper with the usual demand side reaction. On the other hand, being absent less often, the voter prefers less insurance. The former effect dominates at lower, the latter at higher levels of benefit morale. We present empirical evidence for both effects in a sample of 31 countries between 1981 and 2010.
    Keywords: sick pay insurance, political economy, work absence, social norms
    JEL: H53 P16 Z13
    Date: 2012–12
  9. By: Pascal Billand (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Christophe Bravard (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Sudipta Sarangi (Department of Economics, Louisiana State University - Department of Economics, Louisiana State University)
    Abstract: We study the formation of mutual insurance networks in a model where every agent who obtains more resources gives a -xed amount of resources to all agents who have obtained less resources. The low resource agent must be directly linked to the high resource agent to receive this transfer. We identify the pairwise stable networks and e-cient networks. Then, we extend our model to situations where agents di-er in their generosity with regard to the transfer scheme. We show that there exist conditions under which in a pairwise stable network agents who provide the same level of transfers are linked together, while there are no links between agents who provide high transfers and agents who provide low transfers.
    Keywords: Mutual insurance networks; Pairwise stable networks; Effi cient networks
    Date: 2012–12–21
  10. By: Michaël Zemmour (Centre d'Economie de la Sorbonne)
    Abstract: The funding of social protection has strongly evolved in Bismarckian countries : whereas social protection used to rely on social contributions, since the 1990s most of the new expenditures have been funded through taxation, leading to a more balanced mix in the structure of social protection revenue. I propose a formal model in which two social protection systems may coexist : insurance and assistance. Insurance level is set by consensus between firms and unions, whereas assistance expenditures are set by a majority vote in parliament. Social insurance can be manipulated to influence preferences in respect of assistance. It is shown how an exogenous increase in tax competition in a Bismarckian context can lead to the emergence of a mixed model : assistance increases to complement existing insurance, not to replace it. A time series cross-section analysis on 9 countries over 25 years supports the idea that a drop in corporate tax rates can trigger a shift in the tax structure of social protection funding.
    Keywords: Assistance, institutional change, insurance, political economy, tax-competition, veto.
    JEL: P16 H5 H2
    Date: 2012–12
  11. By: Gurenko, Eugene N.; Itigin, Alexander; Wiechert, Renate
    Abstract: Despite the existence of numerous quantitative approaches to the categorization of financial reinsurance contracts, often insurance regulators may find the practical implementation of the task to be technically challenging. This research paper develops a simple, affordable, and robust regulatory method that can help insurance regulators to categorize financial reinsurance contracts as reinsurance or financial instruments. By reviewing real examples of different categorization methods, this paper explains how the proposed method standardizes such categorization. It also summarizes the existing pertinent literature on the subject with the view to helping insurance regulators to first apply some simple indicators to flag the main issues with financial reinsurance contracts that may need further reviews. Having identified the suspicious reinsurance contracts, supervisors may consider several solutions provided by the authors and, in some cases, requiring further quantitative testing of risk transfer contracts for categorization purposes, supervisors may also consider adopting the Standardized Expected Reinsurer's Deficit approach to contract testing presented in this paper. The approach advocates the use of a simple standardized stochastic method that would allow market participants and regulators to perform robust quantitative tests quickly and at an affordable cost. Besides addressing the obvious drawbacks of the"10-10"test, the proposed alternative method allows a great reduction in the technical challenges posed to the users of the Expected Reinsurer's Deficit approach based on full stochastic models with only a minimum loss of predictive accuracy.
    Keywords: Insurance&Risk Mitigation,Debt Markets,Hazard Risk Management,Insurance Law,Labor Policies
    Date: 2012–12–01
  12. By: Aviva Aron-Dine; Liran Einav; Amy Finkelstein
    Abstract: We re-present and re-examine the analysis from the famous RAND Health Insurance Experiment from the 1970s on the impact of consumer cost sharing in health insurance on medical spending. We begin by summarizing the experiment and its core findings in a manner that would be standard in the current age. We then examine potential threats to the validity of a causal interpretation of the experimental treatment effects stemming from different study participation and differential reporting of outcomes across treatment arms. Finally, we re-consider the famous RAND estimate that the elasticity of medical spending with respect to its out-of-pocket price is -0.2, emphasizing the challenges associated with summarizing the experimental treatment effects from non-linear health insurance contracts using a single price elasticity.
    Date: 2012–12
  13. By: Seth Freedman (Indiana University); Haizhen Lin (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Kosali Simon (Indiana University and NBER)
    Abstract: This paper explores the effects of public health insurance expansions on hospitals’ decisions to adopt medical technology. Specifically, we test whether the expansion of Medicaid eligibility for pregnant women during the 1980s and 1990s affected hospitals’ decisions to adopt neonatal intensive care units (NICUs). While the Medicaid expansion insured a substantial number of pregnant women who would otherwise have been uninsured, prior literature also finds that some newly insured women would otherwise have been covered by more generously-reimbursed private sources. This leads to a theoretically ambiguous net effect of Medicaid expansion on a hospital’s incentive to invest in technology. Using American Hospital Association (AHA) data, we find that on average Medicaid expansions had no statistically significant effect on NICU adoption. However, we find that in geographic areas where more of the newly Medicaid-insured may have come from the privately insured population, Medicaid expansion slowed NICU adoption. This holds true particularly when Medicaid payment rates were very low relative to private payment rates. Our findings suggest that despite the fact that on average Medicaid expansions did not affect the proliferation of NICUs in the 1980s and 1990s, the Medicaid-induced shifts from private to public coverage slowed NICU adoption. This finding is consistent with prior evidence on reduced NICU adoption from increased managed care penetration. We conclude by providing suggestive evidence on the health impacts of this deceleration of NICU diffusion, and by discussing the policy implications of our work for insurance expansions associated with the Affordable Care Act.
    Date: 2012–10
  14. By: Mariacristina De Nardi; Eric French; John Bailey Jones
    Abstract: Medicaid was primarily designed to protect and insure the poor against medical shocks. Yet, poorer people tend to live shorter lifespans and incur lower medical expenses before death than richer people. Taking these and other important dimensions of heterogeneity into account, and carefully modeling key institutional aspects, we estimate a structural model of savings and endogenous medical expenses to assess the costs and benefits of Medicaid for single retirees. ; We show that even higher-income retirees benefit from Medicaid, if they live long enough for their resources to be depleted by medical expenses. We also find that all retirees value Medicaid insurance coverage highly, compared to the value of the Medicaid transfers that they actually receive on average.
    Date: 2012
  15. By: Mankart, Jochen; Oikonomou, Rigas
    Abstract: Sharing risks is one of the essential economic roles of families. The importance of this role increases in the amount of uncertainty that households face in the labor market and in the degree of incompleteness of financial markets. We develop a theory of joint household search in frictional labor markets under incomplete financial markets. Households can insure themselves by savings and by timing their labor market participation. We show that this theory can match one aspect of the US data that conventional search models, which do not incorporate joint household search, cannot match. In the data, aggregate employment is pro-cyclical and unemployment counter-cyclical, but their sum, the labor force, is acyclical. In our model, and in the US data, when a family member loses his job in a recession, the other family member joins the labor force to provide insurance.
    Keywords: Heterogeneous Agents, Family Self Insurance, Labor Market Search, Aggregate Fluctuations
    JEL: E24 E25 E32 J10 J64
    Date: 2012–12
  16. By: Eric French; Jae Song
    Abstract: This paper estimates the effect of Disability Insurance receipt on labor supply, accounting for the dynamic nature of the application process. Exploiting the effectively random assignment of judges to disability insurance cases, we use instrumental variables to address the fact that those allowed benefits are a selected sample. We find that benefit receipt reduces labor force participation by 26 percentage points three years after a disability determination decision when not considering the dynamic nature of the applications process. OLS estimates are similar to instrumental variables estimates. We also find that over 60% of those denied benefits by an Administrative Law Judge are subsequently allowed benefits within 10 years, showing that most applicants apply, re-apply, and appeal until they get benefits. Next, we estimate a dynamic programming model of optimal labor supply and appeals choices. Consistent with the law, we assume that people cannot work and appeal at the same time. We match labor supply, appeals, and subsequent allowance decisions predicted by the model to the decisions observed in the data. We use the model to predict labor supply responses to benefit denial when there is no option to appeal. We find that if there was no appeals option, those denied benefits are 35 percentage points more likely to work. However, there is considerable heterogeneity in responses. Most individuals in their 40s would return to work if denied benefits, for example. Our results suggest that many of those denied benefits not because they are unable to work, but because they remain out of the labor force in order to appeal their benefit denial.
    Date: 2012
  17. By: Pieters, A.; Oorschot, K.E. van (Tilburg University); Akkermans, H.A. (Tilburg University)
    Date: 2012

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