nep-ias New Economics Papers
on Insurance Economics
Issue of 2013‒03‒16
fourteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The ACA, Health Care Costs, and Disparities in Employer-Sponsored Health Insurance. By Nan L. Maxwell
  2. Rainfall and Temperature Index Insurance in India: Project Documentation By Matsuda, Ayako; Kurosaki, Takashi; Sawada, Yasuyuki
  3. Kidnap Insurance and its Impact on Kidnapping Outcomes By Mark Pingle; Alexander Fink
  4. Physicians' balance billing, supplemental insurance and access to health care By Izabela Jelovac
  5. The political economics of social health insurance: the tricky case of individuals’ preferences By Pfarr, Christian; Schmid, Andreas
  6. On multiply monotone distributions, continuous or discrete, with applications By Claude Lefèvre; Stéphane Loisel
  7. Price vs. weather shock hedging for cash crops: ex ante evaluation for cotton producers in Cameroon By Antoine Leblois; Philippe Quirion; Benjamin Sultan
  8. Health reform and service satisfaction in the poor : Turkey By Hazama, Yasushi
  9. Optimal Social Security with Imperfect Tagging By Oliver Denk; Jean-Baptiste Michau
  10. Native Grassland Conversion: the Roles of Risk Intervention and Switching Costs By Ruiqing Miao; David A. Hennessy; Hongli Feng
  11. Does Forced Solidarity Hamper Investment in Small and Micro Enterprises? By Grimm, Michael; Hartwig, Renate; Lay, Jann
  12. Common correlated effects and international risk sharing By Peter Fuleky; L Ventura; Qianxue Zhao
  13. How Does the Composition of Disability Insurance Applicants Change Across Business Cycles? By Norma B. Coe; Matthew S. Rutledge
  14. The Use of VA Disability Benefits and Social Security Disability Insurance Among Veterans By Janet M. Wilmoth; Andrew S. London; Colleen M. Heflin

  1. By: Nan L. Maxwell
    Keywords: Affordable Care Act, employer-sponsored health insurance, workforce skills, benefits, disparities, low-wage workers
    JEL: I J
    Date: 2013–03–30
  2. By: Matsuda, Ayako; Kurosaki, Takashi; Sawada, Yasuyuki
    Abstract: As an empirical research on weather index insurance in developing countries, we conducted surveys on rainfall and temperature index insurance products in Madhya Pradesh, India. The rainfall insurance covers drought and excess rain during the monsoon season, while the temperature insurance covers against excess heat during the dry season. This paper documents the details of surveys implemented under this project and describes the key variables collected from them.
    Date: 2013–02
  3. By: Mark Pingle (Department of Economics, University of Nevada, Reno); Alexander Fink (Institut für Wirtschaftspolitik; University of Leipzig)
    Abstract: In the developing world, kidnapping is relatively common, and a market for kidnap insurance has arisen in response. We provide a model that allows us to analyze how kidnap insurance affects the interaction between the kidnapper and the victim’s family when both are self-interested and have complete knowledge. We find that a market for kidnap insurance can be supported because it benefits a risk averse family, as long as the introduction of insurance does not increase the risk of kidnapping too much. Families should fully insure if purchasing insurance does not increase the probability of kidnapping, and partially insure otherwise. Kidnapping insurance allows families to redeem hostages from kidnappers who are more willing to kill, which reduces the number of kidnapping fatalities as long as the insurance does not increase the risk of kidnapping too much.
    Keywords: Kidnap
    JEL: G22 C72 K4
    Date: 2013–03
  4. By: Izabela Jelovac (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon)
    Abstract: Some countries allow physicians to balance bill patients, that is, to bill a fee above the one that is negotiated with, and reimbursed by the health authorities. Balance billing is known for restricting access to physicians' services while supplemental insurance against balance billing amounts is supposed to alleviate the access problem. This paper analyzes in a theoretical setting the consequences of balance billing on the fees setting and on the inequality of access among the users of physicians' services. It also shows that supplemental insurance against the expenses associated with balance billing, rather than alleviating the access problem, increases it.
    Keywords: Physicians' fees; balance billing; supplemental insurance
    Date: 2013–02–12
  5. By: Pfarr, Christian; Schmid, Andreas
    Abstract: Social health insurance systems can be designed with different levels of state involvement and varying degrees of redistribution. In this article we focus on citizens’ preferences regarding the design of their health insurance coverage including the extent of redistribution. Using a microeconomic model we hypothesize that the individual’s preferred options are determined by the relative income position and the relative risk of falling ill. Only individuals who expect to realize a net profit through the implicit redistributive transfers will favour a public insurance coverage over a private one. We test this hypothesis empirically using three dis-tinct approaches. The first two are based on survey questions focusing on the type of coverage and the degree of redistribution respectively. The third is based on a discrete choice experiment thus accounting for trade-offs and budget constraints. The data is from a representative sample of 1.538 German individuals who were surveyed and participated in the DCE in early 2012. We find that the model has to be rejected. There is a wide consensus that redistributive elements should be an integral part of the social health insurance system and could even be extended. However, there are also preferences for health insurance coverage that can be individually optimized.
    Keywords: social health insurance; preferences; discrete choice experiment
    JEL: C93 H23 H51
    Date: 2013–02
  6. By: Claude Lefèvre (ULB - Département de Mathématique [Bruxelles] - Université Libre de Bruxelles); Stéphane Loisel (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429)
    Abstract: This paper is concerned with the class of distributions, continuous or discrete, whose shape is monotone of finite integer order t. A characterization is presented as a mixture of a minimum of t independent uniform distributions. Then, a comparison of t-monotone distributions is made using the s-convex stochastic orders. A link is also pointed out with an alternative approach to monotonicity based on a stationary-excess operator. Finally, the monotonicity property is exploited to reinforce the classical Markov and Lyapunov inequalities. The results are illustrated by several applications to insurance.
    Date: 2013
  7. By: Antoine Leblois (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - AgroParisTech, Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Philippe Quirion (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - AgroParisTech); Benjamin Sultan (LOCEAN - Laboratoire d'Océanographie et du Climat : Expérimentations et Approches Numériques - IRD - INSU - CNRS : UMR7159 - Université Paris VI - Pierre et Marie Curie - Muséum National d'Histoire Naturelle (MNHN))
    Abstract: In the Sudano-sahelian zone, which includes Northern Cameroon, the inter-annual variability of the rainy season is high and irrigation is scarce. As a conse- quence, bad rainy seasons have a detrimental impact on crop yield. In this paper, we assess the risk mitigation capacity of weather index-based insurance for cotton farmers. We compare the ability of various indices, mainly based on daily rainfall, to increase the expected utility of a representative risk-averse farmer. We first give a tractable definition of basis risk and use it to show that weather index-based insurance is associated with a large basis risk. It has thus limited potential for income smoothing, whatever the index or the utility function. Second, in accordance with the existing agronomical literature we find that the length of the cotton growing cycle, in days, is the best performing index considered. Third, we show that using observed cotton sowing dates to define the length of the grow- ing cycle significantly decreases the basis risk, compared to using simulated sowing dates. Finally we found that the gain of the weather-index based insurance is lower than that of hedging against cotton price fluctuations which is provided by the national cotton company. This casts doubts on the strategy of international institutions, which support weather-index insurances in cash crop sectors while pushing to liberalisation without recommending any price stabilization schemes.
    Keywords: Agriculture, weather, index-based insurance.
    Date: 2013–03–04
  8. By: Hazama, Yasushi
    Abstract: Turkey began to reform its health care system in 2003 and introduced universal health insurance in 2008. This paper tests the effect of health reform in Turkey on satisfaction in the poor with public health services. An ordered logit model is applied to a pooled dataset compiled from the Life Satisfaction Survey (N=60,281) by the Turkish Statistical Institute during the period from 2003 to 2011. The results reveal that at the outset the lowest 30% income group was less satisfied than the highest 70% income group but this satisfaction gap dissipated after 2004 and did not reappear during the post-reform period (2009-2011).
    Keywords: Turkey, Public health, Health insurance, Health care
    JEL: I18
    Date: 2013–02
  9. By: Oliver Denk (OECD - Economics Department and CEPII); Jean-Baptiste Michau (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)
    Abstract: Workers are exposed to the risk of permanent disability. We rely on a dynamic mechanism design approach to determine how imperfect information on health should optimally be used to improve the trade-off between inducing the able to work and providing insurance against disability. After deriving the fi…rst-order conditions to this problem, we calibrate the model to the U.S. economy and run a numerical simulation. The government should offer back-loaded incentives and make strategic use of the difference between the age at which disability occurs and the age of eligibility to disability bene…ts. Also, the able who are (mistakenly) tagged as disabled should be encouraged to work until some early retirement age. This makes a decrease in the strictness of the disability test desirable which would reduce the number of disabled who are not awarded the tag and, hence, improve insurance. Finally, we show how the …first-best allocation of resources can asymptotically be implemented by making strategic use of the disability test.
    Keywords: Disability insurance, Imperfect tagging, Optimal policy, Social Security
    Date: 2013–03–04
  10. By: Ruiqing Miao; David A. Hennessy (Center for Agricultural and Rural Development (CARD)); Hongli Feng
    Abstract: We develop a real option model of the irreversible native grassland conversion decision. Upon plowing, native grassland can be followed by either a permanent cropping system or a system in which land is put under cropping (respectively, grazing) whenever crop prices are high (respectively, low). Switching costs are incurred upon alternating between cropping and grazing. The effects of risk intervention in the form of crop insurance subsidies are studied, as are the effects of cropping innovations that reduce switching costs. We calibrate the model by using cropping return data for South Central North Dakota from 1989 to 2012. Simulations show that a risk intervention that offsets 20% of a cropping return shortfall increases the sod-busting cost threshold, below which native sod will be busted, by 41% (or $43.7/acre). Omitting cropping return risk across time underestimates this sod-busting cost threshold by 23% (or $24.35/acre), and hence underestimates the native sod conversion caused by crop production. JEL Classification: Q18, Q38, H23
    Keywords: conservation tillage, crop insurance policy, irreversibility, native grassland, sod busting.
    Date: 2013–02
  11. By: Grimm, Michael (University of Passau); Hartwig, Renate (University of Passau); Lay, Jann (German Institute of Global and Area Studies (GIGA))
    Abstract: Sharing is a norm in many societies. We present a theoretical model on the trade-off between sharing and investment which we test on data from tailors in Burkina Faso. The empirical results support the idea that there are two behavioural patterns: entrepreneurs following an 'insurance regime' comply with sharing norms, are insured but reduce investment in their firm, whereas entrepreneurs in the 'growth regime' are not insured but take undistorted investment decisions. The choice of regime depends on the redistributive pressure, the willingness to take risk, and the return on investment.
    Keywords: forced solidarity, informal insurance, investment, micro and small enterprises, sharing, Sub-Saharan Africa
    JEL: D13 D22 D92 O12 O43
    Date: 2013–02
  12. By: Peter Fuleky (UHERO and Department of Economics, University of Hawaii at Manoa); L Ventura (Department of Economics and Law, Sapienza, University of Rome); Qianxue Zhao (Department of Economics, University of Hawaii at Manoa)
    Abstract: International risk sharing has been among the most actively researched areas of macroeconomics for the last two decades. Empirical contributions in this field make extensive use of so called "consumption insurance" tests evaluating the extent to which idiosyncratic shocks in income get transferred to consumption. A prerequisite of such a test is the isolation of country specific variation in the data. We show that the cross-sectional demeaning technique frequently used in the literature is in general inadequate to eliminate global factors from a panel data set, and can lead to misleading inference. We argue that international risk sharing tests should instead be based on a method that more reliably deals with global factors. We claim and illustrate in our empirical application that the fairly simple common correlated eects estimator for cross-sectionally dependent panels introduced by Pesaran (2006), and Kapetanios et al. (2010) is a tool that satisfies this requirement.
    Keywords: Panel data, Cross-sectional dependence, International risk sharing, Consumption insurance
    JEL: C23 C51 E21 F36
    Date: 2013–03
  13. By: Norma B. Coe; Matthew S. Rutledge
    Abstract: Much as in previous recessions, the number of applications to public disability insurance programs increased sharply during the Great Recession. We find that the composition of applicants also changes across business cycles. For example, applicants during economic downturns, and especially during the Great Recession, are younger, better educated, higher income, and more likely to have recent work experience. However, we find only mixed evidence supporting the theory that the increase in applications in downturns is caused by healthier applicants who apply to disability programs only because they are unemployed. We formally decompose how the differences among the applicants across the business cycle – both from peak to trough and from trough to trough – contribute to the increased probability of applying for, and being awarded, benefits. We find that changing demographics and unemployment rates explain less than half of the increase in the application rate and only one quarter of the increase in the awards to applicants (the allowance rate) between the 2004-2006 expansion and the Great Recession. Further, these same factors predict a fall in the award rate (among eligible individuals), in contrast to the increase observed in the data. Together with the fact that there have been no programmatic changes in the disability programs in the 2000s, these results suggest there have been fundamental changes over the last decade in the way that people apply to disability and in the way these applications are evaluated that cannot be explained by observable differences.
    Date: 2013–02
  14. By: Janet M. Wilmoth; Andrew S. London; Colleen M. Heflin
    Abstract: Although there is substantial functional limitation and disability among veterans of all ages, relatively little is known about veterans’ uptake of Department of Veterans Affairs (VA) Disability Benefits and Social Security Disability Insurance (DI). This project uses data from the 1992, 1993, 1996, 2001, 2004, and 2008 Survey of Income and Program Participation to examine veterans’ participation in VA and DI programs. The results indicate that the majority of veterans do not receive VA or DI benefits, but veterans’ use of these programs has been increasing over time. A higher percentage of veterans receive VA compensation only, which ranges from 4.9 percent in 1992 to 13.2 percent in 2008, than DI compensation only, which ranges from 2.9 percent in 1992 to 6.7 percent in 2008. Furthermore, the rate of joint participation in these two programs is low, ranging from less than 1 percent in 1992 to 3.6 percent in 2008. Veterans experience relatively few within-panel transitions between VA and DI programs. Overall, the likelihood of any disability program use is higher among veterans who served during multiple time periods, are older, black or Hispanic, currently married, and have less than a high school education. Among users, the likelihood of any VA use in contrast to only DI use is higher among veterans who served since 1990, are younger, Hispanic, highly educated, and currently married. Among users, variation in the likelihood of any DI use relative to only VA use generally mirrors variation in the likelihood of any VA use, although there are differences in associations with race/ethnicity, education, and marital status.
    Date: 2013–02

This nep-ias issue is ©2013 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.