nep-ias New Economics Papers
on Insurance Economics
Issue of 2014‒09‒29
thirteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Occupational hazards and social disability insurance By Michaud, Amanda M.; Wiczer, David
  2. The Determinants of Rising Inequality in Health Insurance and Wages By Rong Hai
  3. Dynamics of demand for rainfall index insurance : evidence from a commercial product in India By Stein, Daniel
  4. Sons as Widowhood Insurance: Evidence from Senegal By Sylvie Lambert; Pauline Rossi
  5. Life-care Awards in the Age of the Affordable Care Act By Joshua Congdon-Hohman; Victor Matheson
  6. The implications of an EMU unemployment insurance scheme for supporting incomes By Jara Tamayo, Holguer Xavier; Sutherland, Holly
  7. Double moral hazard and the energy efficiency gap By Louis-Gaëtan Giraudet; Sébastien Houde
  8. A Multi-Region Approach to Assessing Fiscal and Farm Level Consequences of Government Support for Farm Risk Management By Cooper, Joseph; Delbecq, Benoit
  9. Benefits and drawbacks of European Unemployment Insurance By Grégory Claeys; Zsolt Darvas; Guntram B. Wolff
  10. Labor Supply and the Optimality of Social Security By Shantanu Bagchi
  11. The Performance of Risk Adjustment Models in Colombian Competitive Health Insurance Market By Álvaro Riascos; Eduardo Alfonso; Mauricio Romero
  12. A household survey of the cost of illness due to air pollution in Beijing, China By Timothy Swanson; Chiara Ravetti; Yana Popp Jin; Mu Quan; Zhang Shiqiu
  13. Identifying SIFI Determinants for Global Banks and Insurance Companies: Implications for D-SIFIs in Russia By Maiya Anokhina; Henry Penikas; Victor Petrov

  1. By: Michaud, Amanda M. (Indiana University); Wiczer, David (Federal Reserve Bank of St. Louis)
    Keywords: Disability Insurance; Occupational Choice; Optimal Policy
    JEL: E62 I13
    Date: 2014–08–26
  2. By: Rong Hai (Becker Friedman Institute)
    Abstract: What has caused the rising gap in health insurance coverage by education in the U.S. over the last thirty years? How does the employment-based health insurance market interact with the labor market? What are the effects of social insurance such as Medicaid? By developing and structurally estimating an equilibrium model, I find that the interaction between labor market technological changes and the cost growth of medical services explains 60% to 70% of the gap. Using counterfactual experiments, I also evaluate the impact of further Medicaid eligibility expansion and employer mandates introduced in the Affordable Care Act on labor and health insurance markets.
    Date: 2013
  3. By: Stein, Daniel
    Abstract: This paper analyzes the dynamic nature of rainfall insurance purchasing decisions, specifically looking at whether and why receiving an insurance payout induces a greater chance of purchasing insurance again the next year. This analysis uses customer data from the Indian micro-finance institution BASIX, and finds that receiving an insurance payout is associated with a 9 to 22 percentage points increased probability of purchasing insurance the following year. This affect appears to be driven by behavioral effects of receiving a payout, and cannot be explained by trust, learning, or direct effects of weather. Overall, low repurchasing rates even after payouts suggest that current rainfall index insurance products are likely to continue struggling to achieve significant sales at market prices.
    Keywords: E-Business,Labor Policies,Debt Markets,Emerging Markets,Deposit Insurance
    Date: 2014–09–01
  4. By: Sylvie Lambert (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Pauline Rossi (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)
    Abstract: Exploiting original data from a Senegalese household survey, we provide evidence that fertility choices are partly driven by women's needs for widowhood insurance. We use a duration model of birth intervals to show that women most exposed to the risk of widowhood intensify their fertility until they get a son. Insurance through sons entails substantial health costs : short birth spacing raises maternal and infant mortality rates.
    Keywords: Intra-household insurance ; Gender ; Fertility ; Health ; Senegal
    Date: 2014–02–17
  5. By: Joshua Congdon-Hohman (Department of Economics, College of the Holy Cross); Victor Matheson (Department of Economics, College of the Holy Cross)
    Abstract: Prior to January 1, 2014, it would have been reasonable to assume that persons injured in an act of negligence would be forced to pay for their future medical care costs out-of-pocket rather than being able to rely on health insurance. The passage of the Affordable Care Act (ACA) has the potential to radically change how victims pay for future medical expenses, and now nearly every tort award that provides money to the plaintiff for the full payment of medical costs without consideration of the availability of health insurance will serve to overcompensate victims for their expected medical costs. New statutory or judicial rulings regarding subrogation and the collateral source rule appear to be required in order to simultaneously achieve the twin goals of making a tortfeasor pay for their damages while also making the victim whole.
    Keywords: Affordable Care Act, forensic economics, tort awards, lawsuits, health insurance
    JEL: I13 I18 K41
    Date: 2014–09
  6. By: Jara Tamayo, Holguer Xavier; Sutherland, Holly
    Abstract: In this paper we explore the potential of a new unemployment insurance benefit at EMU level to improve the income protection available to the unemployed and their families. The benefit is designed to be additional to existing national provision where this falls short in terms of eligibility (coverage) and the amount payable. The “EMU-UI†has a common design across countries, which is intended to reduce the extent of current gaps in coverage where these are sizeable due to stringent eligibility conditions, to increase generosity where current unemployment benefits are low relative to earnings and to extend duration where this is shorter than 12 months. Our analysis compares the extent of the effect of these improvements across selected countries from the Monetary Union (Germany, Estonia, Greece, Spain, France, Italy, Latvia, Austria, Portugal and Finland) using EUROMOD to simulate entitlement to the national and EMU-UIs and to calculate the effect on household disposable income. We find that the EMU-UI reduces the risk of poverty for the new unemployed and has a positive effect on income stabilisation. The extent of these effects varies in size across countries for two main reasons: notable differences in design of national unemployment insurance schemes and differences in labour force characteristics across countries, mainly in the proportion of self-employed workers who are typically not covered by national schemes. In countries such as France and Finland there is little effect of EMU-UI on poverty risk and stabilisation, while Greece, Italy and Latvia benefit the most, in particular from the EMU proportional scheme. Our analysis highlights potential areas of future research in terms of improving the design of the EMU-UI and accounting for national or EMU level ways of financing, as well as refinements to the methodology used to assess the effects of transitions to unemployment.
    Date: 2014–04–08
  7. By: Louis-Gaëtan Giraudet (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); Sébastien Houde (University of Maryland - University of Maryland)
    Abstract: We investigate how moral hazard problems can cause sub-optimal investment in energy efficiency, a phenomenon known as the energy efficiency gap. We argue that such problems are likely to be important for home energy retrofits, where both the seller and the buyer can take hidden actions. The retrofit contractor may cut on the quality of installation to save costs, while the homeowner may rebound, that is, increase her use of energy services when provided with higher energy efficiency. We first formalize the double moral hazard problem described above and examine how the resulting energy efficiency gap can be reduced through minimum quality standards or energy-savings insurance. We then calibrate the model to the U.S. home insulation market and quantify the deadweight loss. We find that for a large range of market environments, the welfare gains from undoing moral hazard are substantially larger than the costs of quality audits. They are also about one order of magnitude larger than those from internalizing carbon dioxide externalities associated with the use of natural gas for space heating. Moral hazard problems are consistent with homeowners investing with implied discount rates in the 15-35% range. Finally, we find that minimum quality standards outperform energy-savings insurance.
    Keywords: Energy efficiency gap, moral hazard, energy-savings insurance, minimum quality standard
    Date: 2014–06–21
  8. By: Cooper, Joseph; Delbecq, Benoit
    Abstract: The 2014 U.S. Farm Act passed into law in early February, 2014, after approximately three years of hearings. Much debate in the negotiations leading to this Farm Act focused on new programs for providing producers with support payments covering “shallow losses” in revenue. We develop an approach to examine the sensitivity of the farmer’s downside risk protection to marginal changes in the deductible in shallow loss program scenarios. The copula approach we use simultaneously considers price and yield correlation across all U.S. counties producing several major field crops. We find that average payments under the shallow loss program scenarios are elastic with respect to the program’s payment coverage rate. To empirically assess where shallow loss is likely to most benefit producers, we map at the county level the ratios of expected shallow loss payments to crop insurance premiums for corn, soybeans, cotton, and winter wheat. As tail dependencies among individual crop yield densities may vary spatially, we propose a method for grouping counties in a t-copula that allows for heterogeneity in tail dependencies.
    Keywords: 2014 farm act, copula, nonparametric yield density, shallow revenue loss, Agricultural and Food Policy, Demand and Price Analysis, Research and Development/Tech Change/Emerging Technologies, Q10, Q11, Q18, C14, C15, C51, C55,
    Date: 2014
  9. By: Grégory Claeys; Zsolt Darvas; Guntram B. Wolff
    Abstract: Prepared for the ECOFIN in Milan on 13 September 2014. See also interactive simulation to design your own EUI scheme. The issue: Unemployment in Europe has increased to high levels and economic growth has remained subdued. A debate on additional policy instruments to address the situation is therefore warranted. Fiscal stabilisation mechanisms have not provided adequate fiscal stabilisation during the crisis in some countries nor in the euro area as a whole. Different preferences and historical developments mean that national labour markets are differently organised, which sometimes hinders the efficient working of the monetary union. European Unemployment Insurance (EUI) has been proposed as a measure to contribute to fiscal policy management and improve labour markets. Policy challenge: European Unemployment Insurance is one option for stabilising country specific economic cycles thanks to risk sharing, but it would not substantively influence the area-wide fiscal stance. Moral hazard problems are significant but can be reduced by a less generous design and more harmonisation of labour markets. The former would, however, reducethe schemeâ??s stabilisation effect. Reform and harmonisation of labour markets would improve the functioning of monetary union, but would undermine long-standing preferences and ideals which the subsidiarity principle guarantees. The complexity of the design and implementation of EUI and the question of the rightlegal base suggests that it would be a long-term project and not a measure to help quickly the millions currently unemployed.
    Date: 2014–09
  10. By: Shantanu Bagchi (Department of Economics, Towson University)
    Abstract: Traditional economic theory predicts that unfunded social security can be justified on the basis of its ability to efficiently finance retirement, and also for its ability to provide insurance against mortality risk and uninsurable shocks to labor income. In this paper, I demonstrate that the quantitative importance of the traditional roles of social security depends on how household labor supply responds to social security. I build a calibrated general-equilibrium model where social security has a large welfare-improving role, and I show that the distortionary effect on households' labor hours erases virtually all the welfare gains from social security. I also find that this result is robust within the range of labor supply elasticities usually encountered in the macroeconomic literature..
    Keywords: Labor supply, Social security, Mortality risk, Productivity shock, Insurance, Elasticity.
    JEL: E21 H55 J22
    Date: 2014–09
  11. By: Álvaro Riascos; Eduardo Alfonso; Mauricio Romero
    Abstract: We introduce new risk groups to a standard capitation formula and evaluate risk selection incentives of insurers. The study uses a unique data set of almost 24 million affiliates to Government’s mandatory health insurance system. This data set is very rich in the sense of reporting all claims during year 2010, basic demographic variables, initial diagnostic, health services, pharmaceuticals used, etc. It compromises more than 300 million claims. We construct two diagnostic related groups: an adaptation of the 3M algorithm, and a ad hoc diagnostic related group constructed by the authors. Using standard linear capitations formulas we evaluate incentives for cream skimming using several measures. In general, results show a notable improvement in the explanatory power of health expenditures by introducing the ad hoc diagnostic related groups to the standard Colombian risk adjustment formula. With the new risk groups the R2 of the model is 13.53% as opposed to 1.45% of the current formula. Furthermore, for users in the highest expenditure quintile, expected expenditure is 71% of actual expenditure, as opposed to 27% under the current formula. This suggest there is much space for improving the current Colombian capitation formula using information that is currently available.
    Keywords: Risk adjustment, Diagnostic Related Groups, Risk Selection.
    JEL: I11 I13 I18
    Date: 2014–08–15
  12. By: Timothy Swanson; Chiara Ravetti; Yana Popp Jin; Mu Quan; Zhang Shiqiu (Centre for International Environmental Studies, IHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: This paper examines with a case study of Beijing, China, the health benefits that could be reaped from urban air quality improvements. The study implements a household survey to collect information about the yearly medical expenditures and lost days of work, to estimates the total costs of illness (COI) borne by a typical individual due to airborne diseases. The results of this survey provide a lower bound for the health costs borne by the urban population of Beijing due to air pollution. We find that the average individual COI in our sample is more than 3000 yuan per year, corresponding to almost one month of the average wage (slightly more than 500 US$ per year). This is quite sizeable, considering that it represents just the minimum benchmark for the damages caused by pollution to health. This result indicates that Beijing could benefit quite substantially from reducing air pollution in terms of health costs: if it could completely eliminate pollution, the savings in terms of COI would range in an order of magnitude of 21 million yuan per year only from hospitalized cases.
    Keywords: Cost of Illness, Air pollution, Household survey, Insurance
    JEL: Q53 I13 C83
    Date: 2014–09–12
  13. By: Maiya Anokhina (National Research University Higher School of Economics, Moscow); Henry Penikas (National Research University Higher School of Economics, Moscow); Victor Petrov (National Research University Higher School of Economics, Moscow)
    Abstract: The increased role of financial institutions in the economy leads to a need to determine those that are systemically important. The bankruptcy of such institutions creates negative effects for the economy on the global scale. The aim of this article is to identify important financial coefficients that can be used in the methodology of identification of G-SIB and G-SII. Models of binary choice and models of ordered choice are used in this article, several models are highly predictive. Besides this paper has revealed several financial coefficients, that helped to find the probabilities of G-SIF for Russian banks and insurance companies.
    Keywords: Systemic importance; Basel committee, probability of default, financial coefficients; models of ordered choice, models of binary choice, global systemically important banks (G-SIB), insurance company.
    JEL: C70 E58 G21
    Date: 2014–09

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