nep-ias New Economics Papers
on Insurance Economics
Issue of 2013‒11‒29
fifteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Return-to-Work Outcomes Among Social Security Disability Insurance Program Beneficiaries. By Yonatan Ben-Shalom; Arif Mamun
  2. Unemployment Insurance and Disability Insurance in the Great Recession By Andreas I. Mueller; Jesse Rothstein; Till M. von Wachter
  3. What drives demand for redistribution? An empirical analysis of other-regarding and self-insurance motives By Peter Backus; Alejandro Esteller-Moré
  4. How unemployment insurance savings accounts affect employment duration: Evidence from Chile By Nagler, Paula
  5. An overlapping generations approach to price policies in privatehealthcare insurance. The Catalan case By Carles Lavila, Misericordia; Oliva Furés, Martí
  6. Switching Costs, Deposit Insurance and Deposit Withdrawals from Distressed Banks By Brown, Martin; Guin, Benjamin; Morkoetter, Stefan
  7. Solvency II: A driver for mergers and acquisitions? By Stoyanova, Rayna; Gründl, Helmut
  8. Fiscal Externalities and Optimal Unemployment Insurance By Nicholas Lawson
  9. JOB SEARCH COSTS AND INCENTIVES By Andriy Zapechelnyuk; Ro'i Zultan
  10. Bailouts and Systemic Insurance By Giovanni Dell'Ariccia; Lev Ratnovski
  11. Singapore: Report on the Observance of Standards and Codes By International Monetary Fund. Monetary and Capital Markets Department
  12. Risk and Choice: A Research Saga By Gollier, Christian; Hammitt, James; Treich, Nicolas
  13. FFY 2013 Adult Core Set Reporting in CARTS. By Karen Llanos; Jason Williams; Katie Adamek; Bailey Orshan
  14. Proposal for a Stabilisation Fund for the EMU By Delbecque, Bernard
  15. Singapore: Financial System Stability Assessment By International Monetary Fund. Monetary and Capital Markets Department

  1. By: Yonatan Ben-Shalom; Arif Mamun
    Keywords: Return to Work Outcomes, SSDI, Social Security Disability Insurance, Beneficiaries
    JEL: I J
    Date: 2013–11–07
  2. By: Andreas I. Mueller; Jesse Rothstein; Till M. von Wachter
    Abstract: Disability insurance (DI) applications and awards are countercyclical. One potential explanation is that unemployed individuals who exhaust their Unemployment Insurance (UI) benefits use DI as a form of extended benefits. We exploit the haphazard pattern of UI benefit extensions in the Great Recession to identify the effect of UI exhaustion on DI application, using both aggregate data at the state-month and state-week levels and microdata on unemployed individuals in the Current Population Survey. We find no indication that expiration of UI benefits causes DI applications. Our estimates are sufficiently precise to rule out effects of meaningful magnitude.
    JEL: H55 J65
    Date: 2013–11
  3. By: Peter Backus; Alejandro Esteller-Moré
    Date: 2013
  4. By: Nagler, Paula (UNU-MERIT / MGSoG)
    Abstract: The introduction of unemployment insurance savings accounts (UISA) in Chile in October 2002 brought in more comprehensive unemployment protection while decreasing the opportunity costs of job change. Being the first to empirically investigate the effect of UISA on employment duration, this paper examines (i) whether the introduction of UISA affected employment duration among formal private sector workers, and (ii) the magnitude of this effect. The analysis is performed on longitudinal social protection data and uses survival analysis techniques, including non-parametric, semi-parametric and parametric analysis, and competing-risk models. The paper finds that workers participating in the scheme show an increased hazard ratio of leaving employment, or accelerated time to employment termination. The effect is larger for workers becoming unemployed or inactive compared to workers changing jobs. The results provide strong support that the introduction of UISA led to shorter employment duration and higher mobility of the workforce in Chile.
    Keywords: Unemployment Insurance Savings Accounts, Employment Duration, Survival Analysis, Chile
    JEL: C41 J63 J64 J65
    Date: 2013
  5. By: Carles Lavila, Misericordia; Oliva Furés, Martí
    Abstract: We analyze premium policies and price dispersion among private healthcare insurance firms from an overlapping-generations model. The model shows that firms that apply equal premium to all policyholders and firms that set premiums according to the risk of insured can coexist in the short run, whereas coexistence is unlikely in the long run because it requires the coincidence of economic growth and interest rates. We find support for the model’s results in the Catalan health insurance industry. Keywords: Economic theory, price policies, health insurance, health economics, overlapping-generations. JEL Classifications: I11 / L11 / L23
    Keywords: Economia de la salut, Assegurances de salut, Preus -- Fixació, Serveis sanitaris, Producció -- Organització, 338 - Situació econòmica. Política econòmica. Gestió, control i planificació de l'economia. Producció. Serveis. Turisme. Preus,
    Date: 2013
  6. By: Brown, Martin; Guin, Benjamin; Morkoetter, Stefan
    Abstract: We study deposit withdrawals by retail customers of two large Swiss banks after these banks incurred substantial investment losses in the wake of the U.S. subprime crisis. Our analysis is based on survey data providing information on all bank relations of 1,475 households and documenting their reallocation of deposits in 2008-2009. We find that households are 16 percentage points more likely to withdraw deposits from a distressed bank than from a nondistressed bank. The propensity to withdraw deposits from a distressed bank is substantially reduced by household-level switching costs: Households which rely on a single deposit account, which do not live close to a non-distressed bank, or which maintain a credit relationship with the distressed bank, are significantly less likely to withdraw deposits. By contrast, we find that the withdrawal of deposits from distressed banks is unrelated to household coverage by deposit insurance. Our findings provide empirical support to the Basel III liquidity regulations which emphasize the role of well-established client relationships for the stability of bank funding.
    Keywords: Liquidity Risk, Bank Run, Market Discipline, Deposit Insurance, Switching Costs
    JEL: D14 G21 G28
    Date: 2013–11
  7. By: Stoyanova, Rayna; Gründl, Helmut
    Abstract: The European insurance industry is awaiting the new EU-wide harmonized Solvency II framework. Before its introduction, it is important to find out which incentive effects can arise from it. Practitioners predict a trend towards consolidation in the insurance sector due to recognition of geographic diversification effects in Solvency II's standard formula. This paper studies whether the new European regulation standards will constitute a driver for M&As in the non-life insurance sector. We identify situations in which the consolidation becomes profitable. Our results indicate that the Solvency II framework may lead to an enhanced geographic restructuring wave. However, the profitability of this restructuring depends strongly on the correct estimation of costs and the characteristics of the consolidation partner chosen. --
    Keywords: Insurance Regulation,Solvency II,Mergers and Acquisitions
    Date: 2013
  8. By: Nicholas Lawson (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales [EHESS] - Ecole Centrale Marseille (ECM))
    Abstract: A common finding of the optimal unemployment insurance literature is that the optimal UI replacement rate is around 50%, implying that current levels in the US are close to optimal. However, a key assumption in the existing literature is that unemployment benefits are the only government spending activity. In this paper I show that recommendations for optimal UI levels are dramatically reduced when one incorporates the fact that UI spending is a small part of overall government spending. This occurs because the negative impact of UI on income tax revenues implies added welfare costs, a mechanism that I refer to as a fiscal externality. Using both a calibrated structural job search model and a "suffcient statistics" method that relies on reduced-form elasticities, I find that the optimal replacement rate drops to zero once fiscal externalities are incorporated. However, I also consider the possibility that more generous UI could increase reservation wages and thus potentially increase the tax base, and I show that this second fiscal externality could have important effects on the results, with an optimal replacement rate which could rise above 70%.
    Keywords: unemployment insurance; fiscal externality; job search; suffcient statistics; government spending
    Date: 2013–11
  9. By: Andriy Zapechelnyuk (School of Economics and Finance, Queen Mary, University of London, Mile End Road, London E1 4NS, UK); Ro'i Zultan (BGU)
    Abstract: The costs of searching for a job vacancy are typically associated with fric- tion that deters or delays employment of potentially productive individuals. We demonstrate that in a labor market with moral hazard where effort is non- contractible, job search costs play a positive role, whose effect may outweigh the negative implications. As workers are provided incentives to exert effort by the threat of losing their job and having to search for a new vacancy, a reduction in job search costs leads to fewer employees willing to exert effort. The overall lower productivity will make more individuals and firms opting to stay out of the labor market, resulting in lower employment and decreased welfare. Eventually, a reduction of jobs search costs below a certain level results in collapse of the labor market.
    Keywords: job search, moral hazard, labor market, unemployment insurance
    JEL: D83 J64 J65
    Date: 2013
  10. By: Giovanni Dell'Ariccia; Lev Ratnovski
    Abstract: We revisit the link between bailouts and bank risk taking. The expectation of government support to failing banks creates moral hazard—increases bank risk taking. However, when a bank’s success depends on both its effort and the overall stability of the banking system, a government’s commitment to shield banks from contagion may increase their incentives to invest prudently and so reduce bank risk taking. This systemic insurance effect will be relatively more important when bailout rents are low and the risk of contagion (upon a bank failure) is high. The optimal policy may then be not to try to avoid bailouts, but to make them “effectiveâ€: associated with lower rents.
    Keywords: Banking crisis;Financial intermediation;Moral hazard;Banking systems;Risk management;Economic models;Bailouts, banking crises, moral hazard, systemic risk, contagion, bank resolution
    Date: 2013–11–12
  11. By: International Monetary Fund. Monetary and Capital Markets Department
    Abstract: The Monetary Authority of Singapore (MAS) shows a very high level of compliance with the Basel Core Principles and demonstrates a strong commitment by MAS to their implementation. MAS’ current institutional reliability and its commitment to a prudent and sound domestic financial system have contributed to the strong economic development of Singapore and its role as one of the leading financial centers in the world. MAS has built a strong and experienced supervisory staff that has put in place an effective supervisory and regulatory framework that includes active and constructive engagement with the management and boards of financial institutions under MAS supervision. To a large degree, this is a consequence of the strong support of the current Singaporean government for an effective and well-resourced MAS. That said, a high degree of compliance with the core principles is not a guarantee (nor should it be) against the failure of banks. Banking supervision is intended to minimize the likelihood of bank failures, and to deal swiftly and effectively with troubled institutions to minimize the cost of any failures and to preserve financial stability.
    Keywords: Basel Core Principles;Banking sector;Bank supervision;Capital markets;Securities regulations;Securities markets;Insurance;Reports on the Observance of Standards and Codes;Singapore;
    Date: 2013–11–14
  12. By: Gollier, Christian; Hammitt, James; Treich, Nicolas
    Abstract: As in any research field, risk theory has its important questions, results, and paradoxes, as well as its seminal papers and key authors. Louis Eeckhoudt has been a key author in the field of risk theory. To celebrate his many contributions and continue the development of theories of decision making under risk, the Toulouse School of Economics hosted “Risk and choice: A conference in honor of Louis Eeckhoudt” July 12- 13, 2012. This paper presents some of Eeckhoudt’s main contributions to the literature, and provides some illustrations of the remarkable research saga in risk theory over the last 50 years since Pratt’s (1964) characterization of risk aversion under expected utility.
    Keywords: Risk aversion, prudence, risk, self-protection, insurance, portfolio choice, expected utility.
    JEL: D81
    Date: 2013–07
  13. By: Karen Llanos; Jason Williams; Katie Adamek; Bailey Orshan
    Keywords: Medicaid Adult Core Set; Adult Health Care Outcomes, Technical Assistance, Medicaid Health Care Quality; CARTS, Adult CARTS
    JEL: I
    Date: 2013–11–21
  14. By: Delbecque, Bernard
    Abstract: This paper argues that it should be possible to complement Europe’s Economic and Monetary Union with an insurance-type shock absorption mechanism to increase the resilience of member countries to economic shocks and reduce output volatility. Such a mechanism would neither require the establishment of a central authority, nor would it lead to permanent transfers between countries. For this mechanism to become a reality, however, it would be necessary to overcome certain technical problems linked to the difficulty of anticipating correctly the position of an economy in the business cycle.
    Date: 2013–10
  15. By: International Monetary Fund. Monetary and Capital Markets Department
    Abstract: EXECUTIVE SUMMARY The Singapore financial system is highly developed, and well regulated and supervised. Singapore is one of the world’s largest financial centers, built around a core of domestic and international banks, and also offers a wide range of non-bank services. The authorities have given strong emphasis to integrity and stability in finance and to compliance with international standards, and have addressed most recommendations made by the 2004 FSAP. Singapore’s current regulation and supervision are among the best globally. The Monetary Authority of Singapore (MAS) oversees the entire financial system, and has the analytical and operational capabilities to do so effectively. Singapore is exposed to a broad array of domestic and global risks, especially in light of its interconnectedness with other financial centers. The most pressing vulnerability appears to stem from the rapid growth of credit and real estate prices in recent years, but the financial system is also exposed to possible spillovers from a future tightening of U.S. monetary policy, an economic slowdown in China, or a deterioration of economic conditions in Europe. The team’s stress tests suggest that these risks are manageable. This reflects banks’ large capital and other cushions, and the decisive macroprudential actions taken by MAS to address the threat of a bubble in the housing sector. Moreover, MAS has sought to address potential spillovers from other major financial centers by converting large retail branches operating in the domestic market into domestically incorporated subsidiaries, and by pressing in international fora for greater sharing of supervisory information on global systemically important financial institutions (G-SIFIs). Looking forward, the analysis suggests the importance of continuing to monitor closely cross-border interbank liabilities, and also of continuing to adjust macroprudential measures in response to domestic housing market conditions.
    Keywords: Financial system stability assessment;Financial sector;Banks;Credit risk;Bank supervision;Insurance;Stress testing;Capital markets;Macroprudential Policy;Singapore;
    Date: 2013–11–14

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