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on Insurance Economics |
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Issue of 2013‒10‒11
six papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Frédéric Loss (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, CNAM Paris - Conservatoire National des Arts et Métiers - Conservatoire National des Arts et Métiers (CNAM)); Gwanaël Piaser (IPAG - Business School) |
| Abstract: | We consider a competitive insurance market in which agents can privately enter into multicontractual insurance relationships and undertake hidden actions. We study the existence of linear equilibria when insurance companies do not have any restriction on their pricing rules. We provide conditions under which a linear equilibrium exists. We show that two different types of linear equilibria could exist: A first one in which insurance companies make zero expected profits, and a second one in which they make strictly positive expected profits. We also analyze the welfare properties of the linear equilibria. We show that they are not always second best Pareto optimal. |
| Keywords: | Common Agency, Insurance, Moral Hazard, Perfect Competition, Linear Prices Equilibria |
| Date: | 2013–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00870113&r=ias |
| By: | Antoine Leblois (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - AgroParisTech); Philippe Quirion (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - AgroParisTech) |
| Abstract: | In the Sudano-Sahelian region, which includes South Niger, the inter-annual variability of the rainy season is high and irrigation is scarce. As a consequence, bad rainy seasons have a massive impact on crop yield and regularly entail food crises. Traditional insurances based on crop damage assessment are not available because of asymmetric information and high transaction costs compared to the value of production. We assess the risk mitigation capacity of an alternative form of insurance which has been implemented in India since 2003 : insurance based on a weather index. We compare the capacity of various weather indices to increase utility of a representative risk-averse farmer. We show the importance of using plot-level yield data rather than village averages, which bias results. We also illustrate the need for out-of-sample estimations in order to avoid overfitting. Even with the appropriate index and assuming a substantial risk aversion, we find a limited gain of implementing insurance, roughly corresponding to, or slightly exceeding, the cost of implementing such insurances observed in India. However, when we treat separately the plots with and without fertilizers, we show that the benefit of insurance is higher in the former case. This suggests that insurances may increase the use of risk-increasing inputs like fertilizers and improved cultivars, hence average yields, which are very low in the region. |
| Date: | 2013–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00866438&r=ias |
| By: | Tatiana Damjanovic (Department of Economics, University of Exeter); Vladislav Damjanovic (Department of Economics, University of Exeter); Charles Nolan (University of Glasgow) |
| Abstract: | A macroeconomic model is developed to analyse integration of retail and investment banks with and without deposit insurance. Benefits flow from elimination of double marginalization and insurance premia which retail banks otherwise charge investment banks. Deposit insurance increases average output, whether banks are universal or separated, and can be welfare improving as it counters monopoly distortion. However, when unfavourable shocks hit the economy, the size of government bailout is larger with integrated than with separated banks. The welfare assessment of the structure of banks depends on the kinds of shock hitting the economy, the degree of competitiveness of the banking sectors as well as on the efficiency of government intervention (the excess burden of deposit insurance). Scenarios are sketched in which different banking structures are desirable. |
| Keywords: | Financial intermediation in DSGE models, separating commercial and investment banking, competition and risks, systematic and idiosyncratic risks, bailouts, deposit insurance and economic wedges. |
| JEL: | E13 E44 G11 G24 G28 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:exe:wpaper:1308&r=ias |
| By: | Marcus Hagedorn; Fatih Karahan; Iourii Manovskii; Kurt Mitman |
| Abstract: | We exploit a policy discontinuity at U.S. state borders to identify the effects of unemployment insurance policies on unemployment. Our estimates imply that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility. In contrast to the existing recent literature that mainly focused on estimating the effects of benefit duration on job search and acceptance strategies of the unemployed -- the micro effect -- we focus on measuring the general equilibrium macro effect that operates primarily through the response of job creation to unemployment benefit extensions. We find that it is the latter effect that is very important quantitatively. |
| JEL: | E24 J63 J64 J65 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19499&r=ias |
| By: | Julien Albertini (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise); Xavier Fairise (GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - Université du Maine, TEPP - Travail, Emploi et Politiques Publiques - CNRS : FR3435 - Université Paris-Est Marne-la-Vallée (UPEMLV)) |
| Abstract: | In this paper, we study the optimal unemployment benefits financing scheme when the economy is subject to labor market imperfections characterized by real wage rigidities and search frictions. The US unemployment insurance financing is such that firms are taxed proportionately to their layoffs to finance unemployment benefits. Using DSGE methodology, we investigate how policy instruments should interact with labor market imperfections. It is shown that wage rigidities in a search and matching environment cause welfare costs, especially in the absence of an incentive-based unemployment insurance. This cost is mainly due to the distorting effect of wage rigidities which generate inefficient separations. We show that the optimal unemployment benefits financing scheme - corresponding to the Ramsey policy - offsets labor market imperfections and allows implementation of the Pareto allocation. The second-best allocation brings the economy close to the Ramsey allocation. The implementation of the optimal policies clearly highlights the role of labor market institutions for short-run stabilization. |
| Keywords: | DSGE models ; search and matching frictions ; layoff tax ; wage rigidities |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00870055&r=ias |
| By: | Jeffrey Clemens; Joshua D. Gottlieb |
| Abstract: | We analyze Medicare's influence on private payments for physicians' services. Using a large administrative change in payments for surgical procedures relative to other medical services, we find that private payments follow Medicare's lead. On average, a $1 change in Medicare's relative payments results in a $1.30 change in private payments. We find that Medicare similarly moves the level of private payments when it alters fees across the board. Medicare thus strongly influences both relative valuations and aggregate expenditures on physicians' services. We show further that Medicare's price transmission is strongest in markets with large numbers of physicians and low provider consolidation. Transaction and bargaining costs may lead the development of payment systems to suffer from a classic coordination problem. By extension, improvements in Medicare's payment models may have the qualities of public goods. |
| JEL: | H44 H51 H57 I11 I13 L98 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19503&r=ias |