nep-ias New Economics Papers
on Insurance Economics
Issue of 2013‒12‒15
five papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Health Insurance and the Supply of Entrepreneurs: New Evidence from the Affordable Care Act's Dependent Coverage Mandate By James Benjamin Bailey
  2. Understanding and Information Failures in Insurance: Evidence from India By Jean Philippe Platteau; Darwin Ugarte Ontiveros
  3. A Natural Resource Theory of U.S. Crop Insurance Contract Choice By Du, Xiaodong; Hennessy, David A.; Feng, Hongli
  4. Hidden insurance in a moral hazard economy By Bertola, Giuseppe; Koeniger, Winfried
  5. Estimating the Effects of West Sumatra Public Asset Insurance Program on Short-Term Recovery after the September 2009 Earthquake By Paul A. RASCHKY

  1. By: James Benjamin Bailey
    Abstract: Is the difficulty of purchasing health insurance as an individual or small business a major barrier to entrepreneurship in the United States? I answer this question by taking advantage of the natural experiment provided by the Affordable Care Actâs dependent coverage mandate, which allowed many 19-25 year olds to acquire health insurance independently of their employment. This mandate provides a means to estimate the number of potential entrepreneurs discouraged by the current system of employer-based health insurance. A difference-in-difference strategy finds that the dependent coverage mandate led to a 13-24% increase in self-employment among the treated group. The effect is found to be larger for women and for unincorporated businesses. An instrumental variables strategy finds that those actually receiving health insurance coverage as dependents were much more likely to start businesses.
    JEL: L26 J20 I13 I18
    Date: 2013–12–06
  2. By: Jean Philippe Platteau (University of Oxford and University of Namur); Darwin Ugarte Ontiveros (University of Namur)
    Abstract: This paper is an attempt to understand the factors behind low contract renewal rates frequently observed in insurance programs in poor countries. This is done on the basis of the experience of a microinsurance health program in India. We show that deficient information about the insurance product and the functioning of the scheme, and poor understanding of the insurance concept are the major causes of the low contract renewal rate among households which had previously enrolled into the program. A central finding is that, when a household has received a large negative payout during the preceding year, it is more inclined to opt out of the program unless it has a good understanding of what insurance means. In other words, the adverse impact of negative insurance payouts on contract renewal is conditional upon the presence of a cognitive bias which violates the expected utility theory. Moreover, trust in the insurance company has a significant positive effect, yet that effect cannot be disentangled from that of understanding ability. The policy implication of our findings is considerable since they provide a strong justification for mandatory universal health insurance.
    Keywords: Microfinance, microinsurance, insurance literacy
    JEL: G21 I13 O12
    Date: 2013–11
  3. By: Du, Xiaodong; Hennessy, David A.; Feng, Hongli
    Abstract: A large variety of subsidized crop insurance products are available to U.S. crop growers. Distinct and perhaps puzzling patterns in the choices of insurance products and coverage levels can be discerned. Where production conditions are better and yields are less risky then (a) higher insurance coverage levels are chosen; and (b) revenue insurance is preferred over yield insurance. Also, (c) the extent of preference for revenue insurance is stronger in more productive areas. Assuming, as many do, that growers seek to maximize subsidy transfers, point (a) can be explained by the interaction between yield technology and natural resource endowments. Points (b) and (c) can be explained by location in conjunction with the “natural hedge†and a contract design bias in how revenue insurance guarantees are computed. Empirical study of Risk Management Agency data on corn, soybean, and wheat yields, and insurance contract choices lend support to our model inferences.
    Keywords: agricultural policy; contract choice; crop insurance; land use; yield risk measurement.
    JEL: Q15 Q18 Q24
    Date: 2013–08–06
  4. By: Bertola, Giuseppe; Koeniger, Winfried
    Abstract: We consider an economy where individuals privately choose effort and trade competitively priced securities that pay off with effort-determined probability. We show that if insurance against a negative shock is sufficiently incomplete, then standard functional formrestrictions ensure that individual objective functions are optimized by an effort and insurance combination that is unique and satisfies first- and second-order conditions. Modeling insurance incompleteness in terms of costly production of private insurance services, we characterize the constrained inefficiency arising in general equilibrium from competitive pricing of nonexclusive financial contracts. --
    Keywords: Hidden action,Principal agent,First-order approach,Constrained efficiency
    JEL: E21 D81 D82
    Date: 2013
  5. By: Paul A. RASCHKY (Monash University Australia)
    Abstract: This paper analyses the effect of the West Sumatra public asset insurance program on short-term economic recovery after the September 2009 West Sumatra Earthquake. We use satellite data on yearly differences in nighttimelight intensity as a proxy for economic activity, to investigate the effect of the earthquake damage on overall luminosity in 2009 and the progress in recovery in the year 2010. Our identification strategy applies a regression discontinuity (RD) approach that exploits the discontinuity in insurance coverage at the provincial border. We find a small, statistically significant and positive effect of the public insurance scheme on the short-term recovery in West Sumatra.
    Keywords: Natural Disaster Exposure, Economic Activity, Spatial Analysis, Natural Disaster Insurance.
    JEL: G22 Q54 R11
    Date: 2013–12

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