nep-ias New Economics Papers
on Insurance Economics
Issue of 2013‒04‒06
four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. What shapes the generosity of short- and long-term benefits? A political economy approach. By Baptiste Françon; Michaël Zemmour
  2. Ambiguity and insurance: robust capital requirements and premiums By Oliver Walker; Simon Dietz
  3. Vocational Rehabilitation on the Road to Social Security Disability: Longitudinal Statistics from Matched Administrative Data. By David C. Stapleton; Frank H. Martin
  4. The roles of public and private actors in the governance of adaptation: the case of agricultural insurance in India By Susannah Fisher; Swenja Surminski

  1. By: Baptiste Françon (Centre d'Economie de la Sorbonne); Michaël Zemmour (Centre d'Economie de la Sorbonne)
    Abstract: Degressivity of unemployment benefits is a major feature of social protection in most industrialised countries: the replacement rate (the ratio between the level of welfare benefits and the previous income) typically declines with the length of the unemployment spell. Moreover degressivity of unemployment benefits has significant distributive effects as the risk of long-term unemployment varies from one individual to another. This paper proposes a formal model of political support for unemployment insurance that takes into account the decrease in the level of benefits over time. A discount factor is introduced that diminishes the level of benefits for long-term unemployed. The main predictions of our model are the following: i) Unemployment insurance size negatively depends on both the average level and the heterogeneity of unemployment risk ii) The degressivity increases with the average level and the heterogeneity in the individual level of employability defined as the probability of finding a job when unemployed. These predictions are then tested using a dataset of 24 OECD countries. Empirical results are consistent with the model.
    Keywords: Long-term unemployment, political economy, replacement rate, risk heterogeneity, unemployment insurance, voting behaviour.
    JEL: D72 J65 P16
    Date: 2013–03
  2. By: Oliver Walker; Simon Dietz
    Abstract: Many insurance and reinsurance contracts are contingent on events such ashurricanes, terrorist attacks or political upheavals whose probabilities are not known with precision. There is a body of experimental evidence showing thathigher premiums are charged for these “ambiguous” contracts, which may in turn inhibit (re)insurance transactions, but little research analysing explicitlyhow and why premiums are loaded in this way. In this paper we model the effect of ambiguity on the capital requirement of a (re)insurer whose objectives are profit maximisation and robustness. The latter objective means that it musthold enough capital to meet a survival constraint across a range of availableestimates of the probability of ruin. We provide characterisations of when onebook of insurance is more ambiguous than another and formally explore thecircumstances in which a more ambiguous book requires at least as large acapital holding. This analysis allows us to derive several explicit formulae forthe price of ambiguous insurance contracts, each of which identifies the extraambiguity load.
    Date: 2012–11
  3. By: David C. Stapleton; Frank H. Martin
    Keywords: Social Security disability, disability insurance, Old Age, Survivors, and Disability Insurance, OASDI, Rehabilitation Services Administration, RSA, SSDI workers, disabled adult children, disabled beneficiaries
    JEL: I J
    Date: 2012–09–01
  4. By: Susannah Fisher; Swenja Surminski
    Abstract: Climate change adaptation is an increasingly important field and will involve a range of actors from national governments to private companies, communities and households. There is a growing policy discourse supporting the involvement of the private sector in adaptation, however there is little empirical examination to show how the sector might be involved and how adaptation might be governed. This paper uses evidence from the field of risk governance and insurance and analytical frameworks from the wider governance literature to draw important findings for the governance of adaptation. We use the recently published Compendium of Disaster Risk Initiatives in the Developing World and a case study of agricultural insurance in India to argue that the role of the private sector is increasing but so far within a particular model of engagement. In the context of climate change, how the public-private relationships are constructed is key to how adaptation can be leveraged from such an arrangement. The evidence in this paper suggests that due to commercial viability and other concerns there will continue to be a role for the public sector alongside the private sector to ensure adaptation measures address vulnerability. In conclusion we argue that the type of relationship between the public and the private actors has a significant influence on the adaptation outcomes. The question is not purely about involving the private sector which is how this is currently framed within policy and academic work on adaptation, but how the private actors are engaged. Governments seeking to engage private actors need to build those relationships with the desired adaptation outcomes in mind.
    Date: 2012–09

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.