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on Insurance Economics |
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Issue of 2014‒12‒03
seven papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Frank A. Sloan; Patricia A. Robinson; Lindsey M. Eldred |
| Abstract: | This study quantifies the importance of private information, separates the extent to which the positive correlation between the accident probability and insurance coverage reflects adverse selection and moral hazard, and analyzes market segmentation on objective accident risk. We use data we collected to examine the importance of potential sources of private information in individualsʼ third- and first-party insurance choices. Individuals with higher subjective accident probabilities have less liability exposure post insurance purchase and more often experience an accident, conditional on factors insurers use for risk classification. This evidence is consistent with the positive correlation between accident occurrence and liability insurance coverage. We find that the positive correlation almost completely reflects adverse selection. In analysis of insurer sorting, we find that accident-free drivers obtain coverage from insurers with higher independent agency quality ratings. High-quality insurers eschew low-quality drivers on measured dimensions because these drivers are more likely to possess private information about their driving ability and proclivities that affect expected loss. Drivers with a higher risk on factors observable to insurers tend to have private information about their accident risk. This sorting process reflects an institutional response to asymmetric information, and assures a continuous supply of private insurance to unsafe drivers. |
| JEL: | D82 I12 R41 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20679&r=ias |
| By: | Dolls, Mathias; Fuest, Clemens; Neumann, Dirk; Peichl, Andreas |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:14095&r=ias |
| By: | Johannes Geyer; Thorben Korfhage |
| Abstract: | In Germany, individuals in need of long-term care receive support through benefits of the long-term care insurance. A central goal of the insurance is to support informal care provided by family members. Care recipients can choose between benefits in kind (formal home care services) and benefits in cash. From a budgetary perspective family care is a cost-saving alternative to formal home care and to stationary nursing care. However, the opportunity costs resulting from reduced labor supply of the carer are often overlooked. We focus on the labor supply decision of family carers and the incentives set by the long-term care insurance. We estimate a structural model of labor supply and the choice of benefits of family carers. We find that benefits in kind have small positive effects on labor supply. Labor supply elasticities of cash benefits are larger and negative. If both types of benefits increase, negative labor supply effects are offset to a large extent. |
| Keywords: | Labor supply, long-term care, long-term care insurance, structural model |
| JEL: | J22 H31 I13 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp702&r=ias |
| By: | Xiaolin Luo; Pavel V. Shevchenko |
| Abstract: | In this paper we present a numerical valuation of variable annuities with combined Guaranteed Minimum Withdrawal Benefit (GMWB) and Guaranteed Minimum Death Benefit (GMDB) under optimal policyholder behaviour solved as an optimal stochastic control problem. This product simultaneously deals with financial risk, mortality risk and human behaviour. We assume that market is complete in financial risk and mortality risk is completely diversified by selling enough policies and thus the annuity price can be expressed as appropriate expectation. The computing engine employed to solve the optimal stochastic control problem is based on a robust and efficient Gauss-Hermite quadrature method with cubic spline. We present results for three different types of death benefit and show that, under the optimal policyholder behaviour, adding the premium for the death benefit on top of the GMWB can be problematic for contracts with long maturities if the continuous fee structure is kept, which is ordinarily assumed for a GMWB contract. In fact for some long maturities it can be shown that the fee cannot be charged as any proportion of the account value -- there is no solution to match the initial premium with the fair annuity price. On the other hand, the extra fee due to adding the death benefit can be charged upfront or in periodic instalment of fixed amount, and it is cheaper than buying a separate life insurance. |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1411.5453&r=ias |
| By: | Ann P. Bartel; Carri W. Chan; Song-Hee (Hailey) Kim |
| Abstract: | Twenty percent of Medicare patients are readmitted to the hospital within 30 days of discharge, resulting in substantial costs to the U.S. government. As part of the 2010 Affordable Care Act, the Hospital Readmissions Reduction Program financially penalizes hospitals with higher than expected readmissions. Utilizing data on the over 6.6 million Medicare patients treated between 2008 and 2011, we estimate the reductions in readmission and mortality rates of an inpatient intervention (keeping patients in the hospital for an extra day) versus providing outpatient interventions. We find that for heart failure patients, the inpatient and outpatient interventions have practically identical impact on reducing readmissions. For heart attack and pneumonia patients, keeping patients for one more day can potentially save 5 to 6 times as many lives over outpatient programs. Moreover, we find that even if the outpatient programs were cost-free, incurring the additional costs of an extra day may be a more cost-effective option to save lives. While some outpatient programs can be very effective at reducing hospital readmissions, we find that inpatient interventions can be just as, if not more, effective. |
| JEL: | I10 I13 I18 L38 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20499&r=ias |
| By: | Domnisoru, Ciprian |
| Abstract: | The largest decrease in income inequality among EU member states in the recent recession was registered in Romania, a 4.5 point drop in the Gini coefficient between 2007 and 2010. The country experienced a severe economic downturn and some of the toughest austerity measures among EU member states. |
| Keywords: | income distribution, wage differential, social insurance, social protection, economic recession, case study, Romania, EU, répartition du revenu, disparité des salaires, assurance sociale, protection sociale, récession économique, étude de cas, Roumanie, UE, distribución del ingreso, diferencia del salario, seguro social, protección social, recesión económica, estudio de casos, Rumania, UE |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ilo:ilowps:485860&r=ias |
| By: | Mimra, Wanda; Wambach, Achim |
| Abstract: | Riley (1979)'s reactive equilibrium concept addresses problems of equilibrium existence in competitive markets with adverse selection. The game-theoretic interpretation of the reactive equilibrium concept in Engers and Fernandez (1987) yields the Rothschild-Stiglitz (1976)/Riley (1979) allocation as an equilibrium allocation, however multiplicity of equilibrium emerges. In this note we imbed the reactive equilibrium's logic in a dynamic market context with active consumers. We show that the Riley/Rothschild-Stiglitz contracts constitute the unique equilibrium allocation in any pure strategy subgame perfect Nash equilibrium. |
| Keywords: | asymmetric information,competitive insurance market,contract addition,reactive equilibrium |
| JEL: | C72 D82 G22 L10 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:483&r=ias |