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on Insurance Economics |
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Issue of 2014‒12‒19
fifteen papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Vasilaky, Kathryn; Diro, Rahel; Norton, Michael; McCarney, Geoff; Osgood, Daniel |
| Abstract: | Paper removed/under major revisions Sept. 25, 2014. |
| Keywords: | Index Insurance, Agriculture, Financial Education, Credit Constraints, Marketing, |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea14:170256&r=ias |
| By: | Christelis, Dimitris; Georgarakos, Dimitris; Sanz-de-Galdeano, Anna |
| Abstract: | Using data from the US Health and Retirement Study, we study the causal effect of increased health insurance coverage through Medicare and the associated reduction in health-related background risk on financial risk-taking. Given the onset of Medicare at age 65, we identify our effect of interest using a regression discontinuity approach. We find that getting Medicare coverage induces stockholding for those with at least some college education, but not for their less-educated counterparts. Hence, our results indicate that a reduction in background risk induces financial risk-taking in individuals for whom informational and pecuniary stock market participation costs are relatively low. |
| Keywords: | Health Insurance,Medicare,Stockholding,Regression Discontinuity,Household Finance |
| JEL: | D14 I13 G11 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:488&r=ias |
| By: | Dimitris Christelis (CSEF, CFS and CEPAR); Dimitris Georgarakos (Goethe University Frankfurt, CFS and University of Leicester); Anna Sanz-de-Galdeano (University of Alicante and IZA) |
| Abstract: | Using data from the US Health and Retirement Study, we study the causal effect of increased health insurance coverage through Medicare and the associated reduction in health-related background risk on financial risk-taking. Given the onset of Medicare at age 65, we identify our effect of interest using a regression discontinuity approach. We find that getting Medicare coverage induces stockholding for those with at least some college education, but not for their less-educated counterparts. Hence, our results indicate that a reduction in background risk induces financial risk-taking in individuals for whom informational and pecuniary stock market participation costs are relatively low. |
| Keywords: | Health Insurance, Medicare, Stockholding, Regression Discontinuity, Household Finance |
| JEL: | D14 I13 G11 |
| Date: | 2014–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:382&r=ias |
| By: | Fabre, Alice; Pallage, Stéphane; Zimmermann, Christian (Federal Reserve Bank of St. Louis) |
| Abstract: | In this paper we compare the welfare effects of unemployment insurance (UI) with an universal basic income (UBI) system in an economy with idiosyncratic shocks to employment. Both policies provide a safety net in the face of idiosyncratic shocks. While the unemployment insurance program should do a better job at protecting the unemployed, it suffers from moral hazard and substantial monitoring costs, which may threaten its usefulness. The universal basic income, which is simpler to manage and immune to moral hazard, may represent an interesting alternative in this context. We work within a dynamic equilibrium model with savings calibrated to the United States for 1990 and 2011, and provide results that show that UI beats UBI for insurance purposes because it is better targeted towards those in need. |
| Keywords: | Universal basic income; Idiosyncratic shocks; Unemployment insurance; Heterogeneous agents; Moral hazard |
| JEL: | D7 E24 J65 |
| Date: | 2014–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2014-047&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:diwwpp:dp1421&r=ias |
| By: | Hirfrfot, Kibrom; Barrett, Christopher B.; Lentz, Erin; Taddesse, Birhanu |
| Abstract: | In this paper we estimate the effects of an imperfect insurance coverage on subjective well-being of a poor, rural population, by exploring whether insurance in force improves subjective well-being and whether insurance that lapsed but did not pay out leads to ex post buyer’s remorse. Exploiting randomization of incentives to purchase a newly introduced index-based livestock insurance product, we establish that even a product that did not pay out generates significant gains in well-being, on average, and that the result is robust to a host of alternative estimation approaches. We also establish that those who purchase insurance that does not pay out experience buyer’s remorse, although the magnitude of this effect is considerably smaller than that of possessing insurance, so that even an agent who can reasonably anticipate subsequent buyer’s remorse in the event that no indemnity is triggered will find it rational to purchase the product. |
| Keywords: | Ethiopia, index insurance, pastoralists, subjective well-being, vignettes, Institutional and Behavioral Economics, International Development, Risk and Uncertainty, D60, I32, O16, |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea14:173478&r=ias |
| By: | Huck, Steffen; Lünser, Gabriele; Spitzer, Florian; Tyran, Jean-Robert |
| Abstract: | In a laboratory experiment designed to capture key aspects of the interaction be-tween physicians and patients in a stylized way, we study the effects of medical insurance and competition in the guise of free choice of physician. Medical treat-ment is an example of a credence good: only the physician (but not the patient) knows the appropriate treatment, and even after consulting, the patient is not sure whether he got proper treatment or got an unnecessary treatment, i.e. was overtreated. We find that with insurance, moral hazard looms on both sides of the market: patients consult more often and physicians overtreat more often than in the baseline condition. Competition decreases overtreatment compared to the baseline and patients therefore consult more often. When the two institutions are combined, competition is found to partially offset the adverse effects of insur-ance: most patients seek treatment, but overtreatment is moderated. |
| Keywords: | Credence good,Patient,Physician,Overtreatment,Competition,Insurance,Moral hazard |
| JEL: | C91 I11 I13 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2014307&r=ias |
| By: | David Margolis (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, IZA - Forschungsinstitut zur Zukunft der Arbeit (Institute for the Study of Labor) - Bonn Universität - University of Bonn); Lucas Navarro (ILADES - Universidad Alberto Hurtado); David A. Robalino (Social Protection and Labor Sector, Human Development Department - The World Bank) |
| Abstract: | This paper analyses the potential impacts of introducing unemployment insurance (UI) in middle income countries using the case of Malaysia, which today does not have such a system. The analysis is based on a job search model with unemployment and three employment sectors: formal and informal wage employment, and self employment. The parameters of the model are estimated to replicate the structure of the labor market in Malaysia in 2009 and the distribution of earnings for informal, formal and self employed workers. The results suggest that unemployment insurance would have only a modest negative effect on unemployment if benefits are not overly generous. The main effect would be a reallocation of labor from wage into self employment while increasing average wages in the formal and informal sectors. |
| Keywords: | Unemployment insurance, Informal sector, Self employment, Job search |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00714372&r=ias |
| By: | Ramirez, Octavio A.; Carpio, Carlos E.; Collart, Alba J. |
| Keywords: | Crop Production/Industries, Financial Economics, Risk and Uncertainty, |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea14:168367&r=ias |
| By: | Abhijit Banerjee; Esther Duflo; Richard Hornbeck |
| Abstract: | We analyze a randomized trial in which microfinance loans were bundled with an unpopular (but cheap) health insurance policy. In randomly assigned treatment villages, purchase of the insurance policy was made mandatory at the time of loan renewal. This requirement led to a 22 percentage point (or 31%) decline in loan renewal in treatment villages, compared to control villages where the insurance policy was not introduced. The insurance policy itself turned out to be useless, partly due to administrative failures in implementation. Therefore, non-renewing clients' valuation of microfinance is approximated by the modest fee to purchase the insurance; in the presence of any expected gains, the fee represents an upper bound. Comparing client businesses in treatment and control villages, however, the decline in loan renewal had negative impacts that were both economically substantial and statistically significant. Clients' decision to incur these losses, rather than pay the modest insurance premium, implies the substantial financial gains from microfinance are mostly dissipated by unmeasured costs of operating the small businesses. This result potentially reconciles the seemingly large returns to capital for microenterprises with the lack of growth and frequent business closure. |
| JEL: | O12 O16 O19 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20477&r=ias |
| By: | Toth, Russell; Barrett, Christopher B.; Bernstein, Richard; Clark, Patrick; Gomes, Carla; Mohamed, Shibia; Mude, Andrew; Taddesse, Birhanu |
| Abstract: | Does the provision of livestock insurance raise the unintended consequence of stimulating excessive herd accumulation and less environmentally-sustainable herd movement patterns? The impact of insurance is theoretically ambiguous: if precautionary savings motives for holding livestock assets dominate, then we would expect to see households that receive index insurance reduce herd sizes and move less intensively. However if risk-adjusted investment motives dominate then we would expect them to build herds and move more. “Behavioural” or norm-based responses are also possible. To test between these theoretical possibilities we use the randomized provision of livestock insurance paired with novel, high frequency data collection. The results suggest that in the presence of insurance pastoralists accumulate larger herds, and move more intensively. This has implications for the potential ecological impacts scaling up of index insurance programs on the pastoralist rangelands, and for microinsurance and pastoralism more broadly. |
| Keywords: | East Africa, index-based livestock insurance, mobility, pastoralism, Community/Rural/Urban Development, Environmental Economics and Policy, Food Security and Poverty, International Development, Livestock Production/Industries, |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea14:172441&r=ias |
| By: | Baptiste Françon (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne) |
| Abstract: | This paper proposes an empirical analysis of the declining support for the German Social Democratic Party (SPD) during Schröder government's second term of office, which was marked by major reforms in the fields of unemployment insurance and labour market policy (Hartz reforms). Drawing on a panel of West Germans, we provide evidence that this disaffection was strongly related to a worker's occupation and that it involved electoral backlash from core blue-collar constituencies of the SPD. In comparison, the impact of other socio-economic characteristics such as the labour market status or the income was less pronounced. We further show that discontent grew stronger among occupations where the risk of unemployment was more prevalent. This suggests that opposition to specific measures that weakened status-securing principles of the unemployment insurance substantially drove electoral disaffection with the SPD during this period. |
| Keywords: | Political economy; economics of voting; social policy preferences; unemployment insurance; social-democracy; Germany |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00973879&r=ias |
| By: | Harenberg, Daniel; Ludwig, Alexander |
| Abstract: | When markets are incomplete, social security can partially insure against idiosyncratic and aggregate risks. We incorporate both risks into an analytically tractable model with two overlapping generations and demonstrate that they interact over the life-cycle. The interactions appear even though the two risks are orthogonal and they amplify the welfare consequences of introducing social security. On the one hand, the interactions increase the welfare benefits from insurance. On the other hand, they can in- or decrease the welfare costs from crowding out of capital formation. This ambiguous effect on crowding out means that the net effect of these two channels is positive, hence the interactions of risks increase the total welfare benefits of social security. |
| Keywords: | social security,idiosyncratic risk,aggregate risk,welfare,insurance,crowding out |
| JEL: | C68 E27 E62 G12 H55 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:71&r=ias |
| By: | Mußhoff, Oliver; Hirschauer, Norbert; Grüner, Sven; Pielsticker, Stefan |
| Abstract: | Wetterindexversicherungen stellen innovative Risikomanagementinstrumente dar und weisen gegenüber herkömmlichen Versicherungen den Vorteil geringer Administrations- und Regulierungskosten auf. Darüber hinaus entstehen keine Moral-Hazard- und Adverse-Selection-Probleme. In der Landwirtschaft werden Wetterindexversicherungen bisher jedoch kaum eingesetzt. Vor diesem Hintergrund geht es im Rahmen dieses Beitrages um die Frage, ob begrenzte Rationalität ein Erklärungsansatz für die fehlende Adoptionsbereitschaft sein kann. Die Durchführung eines "Extra-Laboratory Experiments" in Form eines mehrperiodischen Einpersonen-Unternehmensplanspiels mit Landwirten brachte Aufschluss über drei zentrale Fragestellungen: Erstens, im Experiment konnte eine Verringerung der Nachfrage nach Wetterindexversicherungen mit steigendem Aufpreis festgestellt werden. Zweitens, die explizite Kommunikation des Aufpreisanteils an der gesamten Versicherungsprämie hatte einen signifikant negativen Einfluss auf die Zahl der nachgefragten Wetterindexversicherungen. Landwirte verzichten möglicherweise auf eine Transaktion, wenn sie das Gefühl haben, dass Versicherungsanbieter dabei (zu viel) Geld verdienen, auch wenn das für sie von Nachteil ist. Dies kann man mit "Inequity Aversion" in Verbindung setzen. Drittens, stieg mit einer Subventionierung von Wetterindexversicherungen (bei gleichbleibenden Kosten für den Landwirt) die Nachfrage. Dies ist ein Indiz dafür, dass eine staatliche Förderung als Gütesignal wahrgenommen wird und subventionierte Handlungen auch ohne Analyse ihrer relativen ökonomischen Vorzüglichkeit bevorzugt werden. |
| Abstract: | Weather index-based insurance is an innovative risk management instrument that, as compared with conventional insurance, causes low administration and regulation costs. Moreover, index-based insurance is neither riddled by moral hazard nor adverse selection problems. Few farmers, however, use weather index-based insurance at present. With this in mind, we focus on the question whether farmers' missing willingness to adopt this innovation may be caused by bounded rationality. Our study, which is based on an extra-laboratory experiment in the form of a multi-period, single-person business simulation game with farmers, provided three central results: First, an increase of the costs (loading) of the insurance reduced farmers' demand for weather index insurance. Second, explicitly informing farmers about the loading (as a percentage of the total premium) reduced demand as well. This may be associated with 'inequity aversion' and taken as an indication that farmers refrain even from a beneficial transaction if they have the feeling that the business partner (here: the insurance provider) earns (too much) money with it. Third, keeping the costs of the insurance constant but communicating to farmers that it had been subsidized increased their demand. This indicates that farmers take subsidies as signaling profitable ways of action without carrying out farm-level analyses of their relative economic competitiveness. |
| Keywords: | Wetterindexversicherung,Aufpreis,Subventionierung,begrenzte Rationalität,experimentelle Ökonomik,Unternehmensplanspiel |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:daredp:1409&r=ias |
| By: | Will Dobbie; Jae Song |
| Abstract: | Consumer bankruptcy is one of the largest social insurance programs in the United States, but little is known about its impact on debtors. We use 500,000 bankruptcy filings matched to administrative tax and foreclosure data to estimate the impact of Chapter 13 bankruptcy protection on subsequent outcomes. Exploiting the random assignment of bankruptcy filings to judges, we find that Chapter 13 protection increases annual earnings by $5,562, decreases five-year mortality by 1.2 percentage points, and decreases five-year foreclosure rates by 19.1 percentage points. These results come primarily from the deterioration of outcomes among dismissed filers, not gains by granted filers. |
| JEL: | J22 K35 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20520&r=ias |