nep-ias New Economics Papers
on Insurance Economics
Issue of 2014‒11‒28
eleven papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Crop Insurance Subsidies: How Important are They? By O'Donoghue, Erik
  2. Insurance Markets for the Elderly By Hanming Fang
  3. Efficiency and competition in the Dutch non-life insurance industry: Effects of the 2006 health care reform By Jacob Bikker; Adelina Popescu
  4. An Unemployment Insurance Scheme for the Euro Area? A Comparison of Different Alternatives using Micro Data By Dolls, Mathias; Fuest, Clemens; Neumann, Dirk; Peichl, Andreas
  5. The Effect of Substance Use Disorder Treatment Use on Crime: Evidence from Public Insurance Expansions and Health Insurance Parity Mandates By Hefei Wen; Jason M. Hockenberry; Janet R. Cummings
  6. What shapes the generosity of short- and long-term benefits? A political economy approach By Baptiste Françon; Michaël Zemmour
  7. Heterogeneity of the effects of health insurance on household savings: Evidence from rural China By Diana Cheung; Ysaline Padieu
  8. Price Volatility and Risk Management: The Case of Rice By Banterle, Alessandro; Vandone, Daniela
  9. Evaluating the Effectiveness of Flood Mitigation Policies in the U.S. By Fan, Qin; Davlasheridze, Meri
  10. Social Insurance, Information Revelation, and Lack of Commitment By Mikhail Golosov; Luigi Iovino
  11. High Marginal Tax Rates on the Top 1%? Lessons from a Life Cycle Model with Idiosyncratic Income Risk By Fabian Kindermann; Dirk Krueger

  1. By: O'Donoghue, Erik
    Keywords: crop insurance, premium subsidies, demand for crop insurance, Agricultural and Food Policy, Risk and Uncertainty,
    Date: 2014
  2. By: Hanming Fang
    Abstract: We describe the risks faced by the ageing population and survey the corresponding insurance markets for these risks. We focus on income risk, health expenditure risk, long-term care expenditure risk and mortality risk. We also discuss the interactions between social insurance and private insurance markets.
    JEL: D14 G22 H51 H55 I13
    Date: 2014–10
  3. By: Jacob Bikker; Adelina Popescu
    Abstract: This paper investigates the cost efficiency and competitive behaviour of the non-life - or property and casualty - insurance market in the Netherlands over the period 1995-2012. We focus on the 2006 health care reform, where public health care insurance has been included in the non-life insurance sector. We start with estimating unused scale economies and find that after the health care reform in 2006, unused scale economies are, at 21%, much higher than before the reform (4%), pointing to a relative increase of fixed costs. Scale inefficiencies are generally higher for smaller insurance and lower for large insurance companies. As a benchmark, we also estimate scale economies for non-health lines of business (LOB), which range from 5% to 10%. To measure competition directly, we apply a novel approach that estimates the impact of marginal costs as indicator of inefficiency on either market shares or profits. Over time, competition in health insurance has increased significantly, but the inclusion of the (non-competitive) public health care funds in the health insurance sector in 2006 caused a fall in the average level of competitive pressure. After the reform, competition continued to improve. In the non-health LOB non-life insurance, we find similar significant effects of efficiency on both market shares. The non-life effects are weaker than in life insurance, banking and non-financial sectors, suggesting less heavy competition.
    Keywords: competition; concentration; efficiency; non-life insurance; health care insurance; performance-conduct-structure model; scale economies; scope economies
    JEL: G22 H51 L11 L12 L13
    Date: 2014–09
  4. By: Dolls, Mathias (ZEW Mannheim); Fuest, Clemens (ZEW Mannheim); Neumann, Dirk (Université catholique de Louvain); Peichl, Andreas (ZEW Mannheim)
    Abstract: We analyze different alternatives how a common unemployment insurance system for the euro area (EA) could be designed and assess their effectiveness to act as an insurance device in the presence of asymmetric macroeconomic shocks. Running counterfactual simulations based on micro data for the period 2000-13, we highlight and quantify the trade-off between automatic stabilization effects and the degree of cross-country transfers. In the baseline, we focus on a non-contingent scheme covering short-term unemployment and find that it would have absorbed a significant fraction of the unemployment shock in the recent crisis. However, 5 member states of the EA18 would have been either a permanent net contributor or net recipient. Our results suggest that claw-back mechanisms and contingent benefits could limit the degree of cross-country redistribution, but might reduce desired insurance effects. We also discuss moral hazard issues at the level of individuals, the administration and economic policy.
    Keywords: European fiscal integration, unemployment insurance, automatic stabilizers
    JEL: F55 H23 J65
    Date: 2014–10
  5. By: Hefei Wen; Jason M. Hockenberry; Janet R. Cummings
    Abstract: We examine the effect of increasing the substance use disorder (SUD) treatment rate on reducing violent and property crime rates, based on county-level panels of SUD treatment and crime data between 2001 and 2008 across the United States. To address the potential endogeneity of the SUD treatment rate with respect to crime rate, we exploit the exogenous variation in the SUD treatment rate induced by two state-level policies, namely insurance expansions under the Health Insurance Flexibility and Accountability (HIFA) waivers and parity mandates for SUD treatment. Once we address the endogeneity issue, we are able to demonstrate an economically meaningful reduction in the rates of robbery, aggravated assault and larceny theft attributable to an increased SUD treatment rate. A back-of-the-envelope calculation shows that a 10 percent relative increase in the SUD treatment rate at an average cost of $1.6 billion yields a crime reduction benefit of $2.5 billion to $4.8 billion. Our findings suggest that expanding insurance coverage and benefits for SUD treatment is an effective policy lever to improve treatment use, and the improved SUD treatment use can effectively and cost-effectively promote public safety through crime reduction.
    JEL: I11 I13 K14 K42
    Date: 2014–10
  6. By: Baptiste Françon (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Michaël Zemmour (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: Degressivity of unemployment benefits is a major feature of social protection in most industrialised countries: the replacement rate (the ratio between the level of welfare benefits and the previous income) typically declines with the length of the unemployment spell. Moreover degressivity of unemployment benefits has significant distributive effects as the risk of long-term unemployment varies from one individual to another. This paper proposes a formal model of political support for unemployment insurance that takes into account the decrease in the level of benefits over time. A discount factor is introduced that diminishes the level of benefits for long-term unemployed. The main predictions of our model are the following: i) Unemployment insurance size negatively depends on both the average level and the heterogeneity of unemployment risk ii) The degressivity increases with the average level and the heterogeneity in the individual level of employability defined as the probability of finding a job when unemployed. These predictions are then tested using a dataset of 24 OECD countries. Empirical results are consistent with the model.
    Keywords: Long-term unemployment; political economy; replacement rate; risk heterogeneity; unemployment insurance; voting behaviour
    Date: 2013–03
  7. By: Diana Cheung (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Ysaline Padieu (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: This paper estimates the impact of the New Cooperative Medical Scheme (NCMS) on household saving across income quartiles in rural China. We use data from the China Health and Nutrition Survey for the 2006 wave and we run an ordinary least squares regression. We control for the endogeneity of NCMS participation by using an instrumental variable strategy. We find evidence that NCMS has a negative impact on savings of lower-middle-income participants, while it does not affect the poorest households. The negative effect of NCMS on savings of middle-income participants holds when we use propensity score matching estimations as a robustness check.
    Keywords: Rural China; New Cooperative Medical Scheme; health insurance; Chinese savings and consumption; propensity score matching
    Date: 2013–07
  8. By: Banterle, Alessandro; Vandone, Daniela
    Abstract: The paper aims at analysing rice-price volatility over the last five years, and at identifying strengths and weaknesses of financial-risk management tools other than derivatives. In particular, it focuses on innovative insurance products and on their potential use in the EU Mediterranean area, specifically in Italy that is the main rice producer in this area.
    Keywords: Agricultural commodity price volatility, rice price volatility, risk management, revenue insurance, Agribusiness, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, Research Methods/ Statistical Methods, Risk and Uncertainty, Q10, Q13, Q14, Q18, G10, G22,
    Date: 2013–09
  9. By: Fan, Qin; Davlasheridze, Meri
    Abstract: We employ a two-stage random utility model (RUM) to estimate people’ marginal willingness to pay (WTP) for enhancing community-level floodplain management activities reflected in the National flood insurance program (NFIP)’s Community Rating System (CRS) program. CRS is a voluntary program, which provides the participating communities with discounts on flood insurance premium in exchange for strengthened flood protection activities. Results show that people with different demographics react differently to flood risk and generally value flood protection activities. We find that among the CRS program activities, people place the highest value on activities concerning repetitive flood loss reduction, with the second highest being public information disclosure about flood risk. In addition, results suggest that people significantly value structural mitigation projects such as flood- and debris- control dams. Importantly, our results suggest that water body as an amenity measure is perceived positively in people’s location choices, nonetheless flood risk information disclosure diminishes the amenity value.
    Keywords: Flood Insurance, Community Rating System, Tiebout Sorting, Locational Equilibrium, Environmental Economics and Policy, Risk and Uncertainty, Q51, Q54 and Q58,
    Date: 2014
  10. By: Mikhail Golosov; Luigi Iovino
    Abstract: We study the optimal provision of insurance against unobservable idiosyncratic shocks in a setting in which a benevolent government cannot commit. A continuum of agents and the government play an infinitely repeated game. Actions of the government are constrained only by the threat of reverting to the worst perfect Bayesian equilibrium (PBE). We construct a recursive problem that characterizes the resource allocation and information revelation on the Pareto frontier of the set of PBE. We prove a version of the Revelation Principle and find an upper bound on the maximum number of messages that are needed to achieve the optimal allocation. Agents play mixed strategies over that message set to limit the amount of information transmitted to the government. The central feature of the optimal contract is that agents who enter the period with low implicitly-promised lifetime utilities reveal no information to the government and receive no insurance against current period shock, while agents with high promised utilities reveal precise information about their current shock and receive insurance as in economies with full commitment by the government.
    JEL: D82 D86 E61 H3
    Date: 2014–10
  11. By: Fabian Kindermann; Dirk Krueger
    Abstract: In this paper we argue that very high marginal labor income tax rates are an effective tool for social insurance even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a wealth distribution that matches the data well, and then use it to characterize fiscal policies that achieve a desired degree of redistribution in society. We find that marginal tax rates on the top 1% of the earnings distribution of close to 90% are optimal. We document that this result is robust to plausible variation in the labor supply elasticity and holds regardless of whether social welfare is measured at the steady state only or includes transitional generations.
    JEL: E62 H21 H24
    Date: 2014–10

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