nep-ias New Economics Papers
on Insurance Economics
Issue of 2013‒03‒23
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Assurance maladie en Suisse : l'assurance supplémentaire nuit-elle à la concurrence sur l'assurance de base ? By Dormont , Brigitte; Geoffard, Pierre-Yves; Lamiraud, Karine
  2. Can Long-Term Care Insurance Partnership Programs Increase Coverage and Reduce Medicaid Costs? By Wei Sun; Anthony Webb
  3. Double moral hazard and the energy efficiency gap By Louis-Gaëtan Giraudet; S. Houde
  4. Duopoly Competition and Regulation in a Two-Sided Health Care Insurance Market with Product Differentiation By Audrey Boilley
  5. Risk Management : History, Definition and Critique By Georges Dionne
  6. Social Learning and Health Insurance Enrollment: Evidence from China's New Cooperative Medical Scheme By Liu, Hong; Sun, Qi; Zhao, Zhong
  7. The Effects of Expanding the Generosity of the Statutory Sickness Insurance System By Ziebarth, Nicolas R.; Karlsson, Martin
  8. Credit Lines as Monitored Liquidity Insurance: Theory and Evidence By Viral V. Acharya; Heitor Almeida; Filippo Ippolito; Ander Perez

  1. By: Dormont , Brigitte (Université Paris Dauphine, PSL); Geoffard, Pierre-Yves (Paris School of Economics (CNRS)); Lamiraud, Karine (ESSEC Business School)
    Abstract: Many countries have introduced competition in health insurance markets. Managed competition settings have been implemented in order to avoid risk selection problems. In Germany, the Netherlands, Switzerland and Israel citizens can choose between different providers for basic coverage. In this article, we focus on the specific case of Switzerland which implemented managed competition in basic health insurance markets in 1996. We study to what extent consumer choice for one’s basic health plan may interact with the decision to subscribe to supplementary insurance. The organization of social health insurance in France is currently very different from the Swiss system. However the question of regulating complementary health care insurance markets in France may be discussed in the middle/long run using the Swiss model. In Switzerland, competition in basic health insurance markets has not been effective so far. There is no evidence of premium convergence within cantons. Consumers have been reluctant to switch to less expensive funds. We investigate one possible barrier to switching behavior, namely the influence of supplementary insurance. We show that low switching rates are the result of the existence of two health insurance markets which are regulated differently: the basic health insurance market where risk selection is prohibited and the supplementary health insurance market where risk selection practices are allowed. We show that holding a supplementary contract reduces the probability of switching basic insurance provider for those with poor self-assessed health but has no effect on the switching behavior of enrollees in good/very good health. The efficient management of competition in the basic insurance market may suffer from a lack of adequate regulation in the supplementary market.
    Keywords: Concurrence en assurance maladie; mobilité des assurés; assurance de base; assurance supplémentaire
    JEL: D41 G22
    Date: 2013–02
  2. By: Wei Sun; Anthony Webb
    Abstract: Although long-term care is a substantial financial risk for retired households, only about 10 percent purchase insurance, with many of the remainder relying on Medicaid. Faced with rising Medicaid expenditures on long-term care, states have attempted to encourage the purchase of private long-term care insurance through partnership programs that exempt purchasers of qualifying policies from the Medicaid asset test. Using numerical optimization techniques, and assuming plausible preference parameters, we show that the programs will only increase insurance coverage among single males by 5 percent and single females by 4 percent. Most of the program benefits will go to those who would have purchased non-partnership long-term care insurance anyway. Thus, the cost of the subsidy will exceed the savings in Medicaid costs.
    Date: 2013–03
  3. By: Louis-Gaëtan Giraudet (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); S. Houde (MS&E - Department of Management Science and Engineering [Stanford] - Stanford University)
    Abstract: Moral hazard issues can deter profitable investments in energy efficiency. Energy-savings insurance and quality standards can mitigate the problem - yet not eliminate it.
    Date: 2013
  4. By: Audrey Boilley (CRESE, Université de Franche-comté)
    Abstract: We compare duopoly competition with a regulated public monopoly in the health care insurance sector using the two-sided market approach. Health plans allow policyholders and physicians to interact. Policyholders have a preference for one of two health plans and value the diversity of physicians. Physicians value the number of policyholders because they are paid on a fee-for-service basis. This is a positive network externality. We find that the resulting Nash equilibria are explained by the two standard effects of product differentiation: the price competition effect and the market share effect, and by two opposing effects related to the network externality. We call these the positive earning effect and the negative spending effect. Overall the comparison between the two types of organizations shows that regulation is preferred when the physicians' market is not covered and competition is preferred when it is covered. But each time the choice is made at the expense of one type of agent.
    Keywords: Two-Sided Markets, Managed Care Competition, Network Effects, Product Differentiation, Hotelling, Public Policy
    JEL: C72 D21 D43 L11
    Date: 2013–03
  5. By: Georges Dionne
    Abstract: The study of risk management began after World War II. Risk management has long been associated with the use of market insurance to protect individuals and companies from various losses associated with accidents. Other forms of risk management, alternatives to market insurance, surfaced during the 1950s when market insurance was perceived as very costly and incomplete for protection against pure risk. The use of derivatives as risk management instruments arose during the 1970s, and expanded rapidly during the 1980s, as companies intensified their financial risk management. International risk regulation began in the 1990s, and financial firms developed internal risk management models and capital calculation formulas to hedge against unanticipated risks and reduce regulatory capital. Concomitantly, governance of risk management became essential, integrated risk management was introduced and the first corporate risk officer positions were created. Nonetheless, these regulations, governance rules and risk management methods failed to prevent the financial crisis that began in 2007.
    Keywords: Risk management, derivatives, regulation, financial crisis, insurance market, self-protection, self-insurance, governance
    JEL: D81 G21 G22
    Date: 2013
  6. By: Liu, Hong (Central University of Finance and Economics); Sun, Qi (Shanghai University of Finance and Economics); Zhao, Zhong (Renmin University of China)
    Abstract: This paper examines the role of social learning in household enrollment decisions for the New Cooperative Medical Scheme in rural China by estimating a static game with incomplete information. Using a rich dataset from the China Health and Nutrition Survey, we find that the social network effects in the enrollment decision are large and significant. Furthermore, we use temporal and spatial proximity among household heads and obtain the result that the primary mechanism for the social network effects is social learning. Our findings indicate that a 10-percentage-point increase in the enrollment rate in a village increases one's take-up probability by 5 percentage points. We also find that the importance of social learning decreases significantly with the development of alternative information channels. Finally, the evidence suggests that healthier, wealthier, relatively well-educated older male household heads with Han nationality tend to be opinion leaders.
    Keywords: rural China, health insurance, social learning, social effect
    JEL: I1 G22
    Date: 2013–02
  7. By: Ziebarth, Nicolas R. (Cornell University); Karlsson, Martin (University of Duisburg-Essen)
    Abstract: This article evaluates an expansion of employer-mandated sick leave from 80 to 100 percent of forgone gross wages in Germany. We employ and compare parametric difference-in-difference (DID), matching DID, and mixed approaches. Overall workplace attendance decreased by at least 10 percent or 1 day per worker per year. We show that taking partial compliance into account increases coefficient estimates. Further, heterogeneity in response behavior was of great importance. There is no evidence that the increase in sick leave improved employee health, a finding that supports a shirking explanation. Finally, we provide evidence on potential labor market adjustments to the reform.
    Keywords: generosity of social insurance, difference-in-differences estimation, sickness absence, employer sick leave mandate, natural experiment, SOEP
    JEL: H51 I18 J22 J32
    Date: 2013–02
  8. By: Viral V. Acharya; Heitor Almeida; Filippo Ippolito; Ander Perez
    Abstract: We propose and test a theory of corporate liquidity management in which credit lines provided by banks to firms are a form of monitored liquidity insurance. Bank monitoring and resulting credit line revocations help control illiquidity-seeking behavior by firms. Firms with high liquidity risk are likely to use cash rather than credit lines for liquidity management because the cost of monitored liquidity insurance increases with liquidity risk. We exploit a quasi-experiment around the downgrade of General Motors (GM) and Ford in 2005 and find that firms that experienced an exogenous increase in liquidity risk (specifically, firms that relied on bonds for financing in the pre-downgrade period) moved out of credit lines and into cash holdings in the aftermath of the downgrade. We observe a similar effect for firms whose ability to raise equity financing is compromised by pricing pressure caused by mutual fund redemptions. Finally, we find support for the model’s other novel empirical implication that firms with low hedging needs (high correlation between cash flows and investment opportunities) are more likely to use credit lines relative to cash, and are also less likely to face covenants and revocations when using credit lines.
    JEL: E22 E5 G21 G31 G32
    Date: 2013–03

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