nep-ias New Economics Papers
on Insurance Economics
Issue of 2014‒04‒05
six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Growing Risk in the Insurance Sector By Yogo, Motohiro; Koijen, Ralph S.J.
  2. A note on risk sharing against idiosyncratic shocks and geographic mobility in Japan By Yamada, Tomoaki
  3. Separating Moral Hazard from Adverse Selection: Evidence from the U.S. Federal Crop Insurance Program By Michael J. Roberts; Erik O'Donoghue; Nigel Key
  4. Cross-country insurance mechanisms in currency unions By Nancy van Beers; Michiel Bijlsma; Gijsbert T. J. Zwart
  5. Social Security and the Interactions Between Aggregate and Idiosyncratic Risk By Daniel Harenberg; Alexander Ludwig
  6. Financial Mechanisms for Integrating Funds for Health and Social Care: An Evidence Review By Anne Mason; Maria Goddard; Helen Weatherly

  1. By: Yogo, Motohiro (Federal Reserve Bank of Minneapolis); Koijen, Ralph S.J. (London Business School)
    Abstract: Developing risk in the life insurance industry requires prudent policy response to prevent broader economic damage.
    Keywords: Shadow insurance; Life insurance
    Date: 2014–03–24
  2. By: Yamada, Tomoaki
    Abstract: In this study, using Japanese household panel data, we analyze how well idiosyncratic income risks are shared by regions. We find that geographic mobility influences individual consumption growth rates, suggesting that complete asset markets fail to exist. We reject the full insurance hypothesis for both urban and rural areas and find that the extent of risk sharing differs significantly by region.
    Keywords: Risk sharing; Consumption insurance; Geographic mobility
    JEL: D12 D31 E21
    Date: 2014–03–28
  3. By: Michael J. Roberts (Department of Economics, University of Hawaii at Manoa & Sea Grant); Erik O'Donoghue (USDA Economic Research Service); Nigel Key (USDA Economic Research Service)
    Abstract: We use data from the administrative les of the U.S. Department of Agriculture's Risk Management Agency to examine how the distribution of crop yields changed as individual farmers shifted into and out of the federal crop insurance program. The large panel facilitates use of fixed effects that span each combination of farmer and production practice to account for unobserved differences in farmer abilities, risk preferences and soils, in addition tofixed effects for interactions between all years and all counties to account for geographically-specific technological change, local prices, and weather. We also account for farm-specific yield variances. Conditional on this large set of fixed effects, we estimate the mean shift in yield and non-parametrically estimate the shift in the distribution around the conditional mean associated with enrollment incrop insurance. Because differences between farmer and land types have been accounted for (i.e., controlling for adverse selection), the estimated shifts in yield distributions likely reflect moral hazard. For most crops in most states we find insurance is associated with statistically signicant but small downward shifts in average yield. The largest shifts occur for cotton and rice, the highest-value of ve crops considered. By integrating the estimated shift in yield distributions over actual indemnities paid, we provide estimates of the total indemnities paid due to moral hazard. Our results indicate moral hazard accounted for an estimated $53.7 million in indemnities between 1992 and 2001, which amounts to 0.9% of indemnities paid to the insured crops and states considered.
    Keywords: Moral hazard, asymmetric information, insurance, agricultural policy
    JEL: D82 G22 Q18
    Date: 2014–03
  4. By: Nancy van Beers; Michiel Bijlsma; Gijsbert T. J. Zwart
    Abstract: Countries in a monetary union can adjust to shocks either through internal or external mechanisms. We quantitatively assess for the European Union a number of relevant mechanisms suggested by Mundellâ??s optimal currency area theory, and compare them to the United States. For this purpose, we update a number of empirical analyses in the economic literature that identify (1) the size of asymmetries across countries and (2) the magnitude of insurance mechanisms relative to similar mechanisms and compare results for the European Monetary Union (EMU) with those obtained for the US. To study the level of synchronization between EMU countries we follow Alesina et al. (2002) and Barro and Tenreyro (2007). To measure the effect of an employment shock on employment levels, unemployment rates and participation rates we perform an analysis based on Blanchard and Katz (1992) and Decressin and Fatas (1995). We measure consumption smoothing through capital markets, fiscal transfers and savings, using the approach by Asdrubali et al. (1996) and Afonso and Furceri (2007). To analyze risk sharing through a common safety net for banks we perform a rudimentary simulation analysis.
    Date: 2014–03
  5. By: Daniel Harenberg (ETH Zurich, Switzerland); Alexander Ludwig (CMR & FiFo, University of Cologne)
    Abstract: We ask whether a PAYG-financed social security system is welfare improving in an economy with idiosyncratic and aggregate risk. We argue that interactions between the two risks are important for this question. One is a direct interaction in the form of a countercyclical variance of idiosyncratic income risk. The other indirectly emerges over a household's life-cycle because retirement savings contain the history of idiosyncratic and aggregate shocks. We show that this leads to risk interactions, even when risks are statistically independent. In our quantitative analysis, we find that introducing social security with a contribution rate of two percent leads to welfare gains of 2.2% of lifetime consumption in expectation, despite substantial crowding out of capital. This welfare gain stands in contrast to the welfare losses documented in the previous literature, which studies one risk in isolation. We show that jointly modeling both risks is crucial: 60% of the welfare benefits from insurance result from the interactions of risks.
    Keywords: Social security; idiosyncratic risk; aggregate risk; welfare
    JEL: C68 E27 E62 G12 H55
    Date: 2014–03
  6. By: Anne Mason (Centre for Health Economics, University of York, UK); Maria Goddard (Centre for Health Economics, University of York, UK); Helen Weatherly (Centre for Health Economics, University of York, UK)
    Abstract: Integrated care is often perceived as a solution for some of the major challenges faced by health and social care systems. In these systems, 20% of the population accounts for 80% of the expenditure on care [1]. These ‘high users’ are typically people with one or more long-term conditions and who have complex needs that straddle health and social care boundaries; the population includes, but is not limited to, older people. By coordinating care at the level of the individual, decision makers should in theory identify problems earlier in the care pathway and shift care closer to home, improve the patient experience, prevent or reduce avoidable hospital admissions and delayed discharges, improve health outcomes and reduce unnecessary duplication of care. However, empirical studies of integrated care systems suggest that the reality falls far short of these high expectations. While some evaluations have identified cost savings or improved outcomes, most find no significant benefits, and in those that do identify improvements, the effects are small.
    Keywords: Payment systems, pooled budgets, joint commissioning, integrated care, systematic review
    Date: 2014–03

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