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on Insurance Economics |
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Issue of 2015‒02‒28
twenty-two papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Stephan Dietrich (Georg-August-University Göttingen ); Marcela Ibanez (Georg-August-University Göttingen ) |
| Abstract: | This paper explores the impacts of traditional agricultural insurance that offers protection against climatic shocks on small-scale tobacco farmers in Colombia. We analyze the impacts of access to the insurance on household financial outcomes after a period of severe climatic events that caused substantial crop failures. Our identification strategy benefits from a natural experimental setup of the form in which the insurance was launched. We find that tobacco producers with access to the insurance program were less likely to acquire informal loans, were less likely to use loans to repay debts, and had access to loans with lower interest rates and longer maturation periods. Moreover, access to this program was positively associated with increased savings and accumulation of liquid assets. |
| Keywords: | Insurance; Credit; Natural Disasters; Risk Management; Colombia |
| JEL: | G22 G23 O13 O16 Q14 |
| Date: | 2015–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:got:gotcrc:165&r=ias |
| By: | Mina, Christian D. ; Reyes, Celia M. ; Gloria, Reneli Ann B. ; Mercado, Sarah Joy P. |
| Abstract: | The situation of the poor who participate in the country`s agricultural sector has been exacerbated by the increasingly prevalent natural calamities, pests, and other such unpredictable event. However, there are certain risk management tools that aid in lessening the farmers` financial burden when losses related to such natural disasters are incurred. One of them is the crop or agricultural insurance. In the Philippines, the Philippine Crop Insurance Corporation (PCIC) is the government organization that implements rice, corn, high-value commercial crop, livestock, noncrop agricultural asset, fishery, and term insurance programs. The question thus arises regarding the effectiveness and sustainability of the said programs. It is thus the purpose of this study to review the design and implementation of the PCIC`s insurance programs. Key informant interviews and focus group discussions with various PCIC clients and partners in selected regions of the country, together with desktop review and secondary data analysis, were conducted. |
| Keywords: | Philippines, agricultural insurance, Philippine Crop Insurance Corporation, design, implementation, process evaluation |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:phd:dpaper:dp_2015-07&r=ias |
| By: | Catherine McLaughlin Adam Swinburn |
| Abstract: | This brief found that small businesses that continue to offer coverage will face changes in what plans are available to offer. As individual and Small Business Health Options Program (SHOP) exchanges are developed, employees of small businesses will likely receive more choices and more comprehensive coverage, possibly at more competitive prices. |
| Keywords: | Health Insurance, Small Businesses, Survey, Alabama, Colorado, Minnesota, New York, Oregon |
| JEL: | I |
| Date: | 2014–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:f11fbf115563400485f2ff04b71ca300&r=ias |
| By: | Mina, Christian D. ; Reyes, Celia M. ; Gloria, Reneli Ann B. |
| Abstract: | Under the Aquino administration, premium subsidies on agricultural insurance have significantly increased, mostly due to the special programs being implemented by the Philippine Crop Insurance Corporation (PCIC). This paper attempts to describe the various fully subsidized agricultural insurance programs of the PCIC, the rationale of each, the beneficiary selection procedures that they undertake, and highlight the implementation issues and concerns that might have policy and welfare implications crucial to their success. The paper finds that the lack of predictability or continuity in implementing these programs, coupled with difficulties in interagency coordination, has posed operational challenges in implementing these. There is also a need for an overarching policy to guide the administration of government subsidies in agricultural insurance, as well as guidelines on prioritization of beneficiaries, to help PCIC offer continued services to the identified beneficiaries and determine who to prioritize. |
| Keywords: | Philippines, agricultural credit, agricultural insurance, Philippine Crop Insurance Corporation, government premium subsidy, DAR ARB-AIP, Registry System for Basic Sectors in Agriculture (RSBSA), DA-Sikat Saka, WARA, NIA Third Cropping Rice Program |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:phd:dpaper:dp_2015-08&r=ias |
| By: | Rodolfo Campos ; Iliana Reggio |
| Abstract: | We study the optimal provision of unemployment insurance (UI) in a framework that distinguishes between consumption and expenditure. We derive a "sufficient statistics" formula for optimal UI that is expressed terms of observable variables and can therefore be used in applied work. Recent research has shown that unemployed households pay less per unit of consumption than employed households. This finding has two counteracting effects on the optimal level of UI. On the one hand, consumption smoothing benefits identified from expenditure data overestimate the true marginal benefits of UI. On the other hand, UI benefits become more valuable because they buy more consumption when unemployed. In an optimal design, which effect dominates depends on the curvature of the utility function. We show that for relative risk aversion larger than one the first effect dominates, leading to lower levels of optimal UI. |
| Keywords: | consumption , expenditure , consumption-smoothing , social insurance , unemployment insurance |
| JEL: | D11 J64 J65 J68 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we1502&r=ias |
| By: | Anne Duchêne |
| Abstract: | Empirical studies have found that high litigation costs often discourage small firms from investing in R&D, as they fear their patent will be infringed and they will not be able to afford litigation. As a solution, firms have been encouraged to purchase insurance policies which, by covering legal costs in the event of a trial, serve as a commitment to litigate so that settlement terms are more favorable to the insured, and potential infringement is less likely to occur. However, very few firms are purchasing insurance and the market remains poorly developed throughout the world. I show that firms might be discouraged from buying insurance because of information asymmetries, not only with insurance companies but also with their competitors. I study the situation of a patent holder, who perfectly knows the validity and enforceability (“strength”) of her patent, that has been infringed by a competitor with less information on the patent. The patent holder can purchase insurance to have a credible threat to litigate and increase the infringer’s settlement offer. But the decision to buy an insurance conveys information about the patent strength to the infringer. As a result the patent holder may prefer not to be insured rather than transmitting this information. This signaling effect can yield different equilibriums, in particular a pooling equilibrium “no insurance” where no patent holder purchases an insurance. I study if this situation might be improved by imposing a mandatory insurance or by giving the insurer a share of litigation proceeds. |
| Keywords: | litigation, settlement, patent litigation, insurance. |
| JEL: | D82 K41 G22 O34 |
| Date: | 2015–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2015-621&r=ias |
| By: | de Nicola, Francesca |
| Abstract: | Farmers in developing countries face a wide array of risks. Yet they often lack formal financial instruments to protect against risks. This paper examines the impact on consumption, investment, and welfare of the separate provision of three financial products: weather insurance, savings, and credit. The paper develops a dynamic stochastic mode to capture the essential features of the lives of West African rural households. The model is calibrated with data from farmers in Burkina Faso and Senegal, to assess quantitatively the effects of three policy interventions. For each intervention the analysis first considers a benchmark scenario that abstracts from the flaws that affect each instrument; later the assumptions are relaxed. Weather insurance offers the largest welfare gains at each level of wealth, although the gains are significantly reduced by introducing a multiple on the insurance premium. Over time, however, savings can lead to substantial gains, higher than those achievable by unsubsidized weather insurance. |
| Keywords: | Debt Markets,Climate Change Economics,Economic Theory&Research,Financial Intermediation,Banks&Banking Reform |
| Date: | 2015–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:7187&r=ias |
| By: | Pichler, Stefan (ETH Zurich ); Ziebarth, Nicolas R. (Cornell University ) |
| Abstract: | This paper proposes a test for the existence and the degree of contagious presenteeism and negative externalities in sickness insurance schemes. First, we theoretically decompose moral hazard into shirking and contagious presenteeism behavior. Then we derive testable conditions for reduced shirking, increased presenteeism, and the level of overall moral hazard when benefits are cut. We implement the test empirically exploiting German sick pay reforms and administrative industry-level data on certified sick leave by diagnoses. The labor supply adjustment for contagious diseases is significantly smaller than for non-contagious diseases, providing evidence for contagious presenteeism and negative externalities which arise in form of infections. |
| Keywords: | sickness insurance, sick pay, presenteeism, contagious diseases, infections, negative externalities, shirking |
| JEL: | I12 I13 I18 J22 J28 J32 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8850&r=ias |
| By: | Martín-Román, Angel ; Moral, Alfonso |
| Abstract: | The cost of duration moral hazard in workplace accident insurance has been amply explored by North-American scholars in both the USA and Canada. Given the current context of financial constraints in public accounts and particularly in the Social Security system, we feel that the issue merits inquiry in the case of Spain. The present research also posits a methodological proposal using the econometric technique of stochastic frontiers, which allows us to break down the duration of work-related leave into what we term “economic days” and “medical days”. Our calculations indicate that during the seven-year period spanning 2005 to 2011, the cost of sick leave amongst full-time salaried workers amounted to 5,830 million Euros (in constant 2011 Euros). Of this total, and bearing in mind that “economic days” are those attributable to duration moral hazard, over 2,500 million Euros might be linked to workplace absenteeism. It is on this figure where economic policy measures might prove more effective. |
| Keywords: | workplace accident insurance, moral hazard, stochastic frontiers |
| JEL: | I13 J28 J32 |
| Date: | 2015–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:62020&r=ias |
| By: | Wellschmied, Felix (Universidad Carlos III de Madrid ) |
| Abstract: | This paper quantitatively determines the asset limit in income support programs which minimizes consumption volatility in a lifecycle model with incomplete markets and idiosyncratic earnings risk. An asset limit allows allocating transfers to those households with the highest utility gains from extra consumption. Moreover, it serves as substitute for history and age dependent taxation. However, a low limit provides incentives for high school dropouts to accumulate almost no wealth. Consequently, they miss self-insurance and suffer from high consumption volatility. For an unborn, these effects are optimally traded-off with an asset limit of $145000. |
| Keywords: | means-tested programs, public insurance, incomplete markets |
| JEL: | D91 I38 J26 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8838&r=ias |
| By: | Laura R. Wherry ; Sarah Miller ; Robert Kaestner ; Bruce D. Meyer |
| Abstract: | Policy-makers have argued that providing public health insurance coverage to the uninsured lowers long-run costs by reducing the need for expensive hospitalizations and emergency department visits later in life. In this paper, we provide evidence for such a phenomenon by exploiting a legislated discontinuity in the cumulative number of years a child is eligible for Medicaid based on date of birth. We find that having more years of Medicaid eligibility in childhood is associated with fewer hospitalizations and emergency department visits in adulthood for blacks. Our effects are particularly pronounced for hospitalizations and emergency department visits related to chronic illnesses and those of patients living in low-income neighborhoods. Furthermore, we find suggestive evidence that these effects are larger in states where the difference in the number of Medicaid-eligible years across the cutoff birth date is greater. We do not find effects on hospitalizations related to appendicitis or injury, two conditions that are unlikely to be affected by medical intervention in childhood. Our calculations suggest that lower rates of hospitalizations and emergency department visits during one year in adulthood offset between 3 and 5 percent of the initial costs of expanding Medicaid. This implies substantial savings if the decline in utilization spans multiple years or grows with age. |
| JEL: | I12 I13 I28 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20929&r=ias |
| By: | Peter J. Huckfeldt ; Amelia Haviland ; Ateev Mehrotra ; Zachary Wagner ; Neeraj Sood |
| Abstract: | Prior studies suggest that consumer-directed health plans (CDHPs) -characterized by high deductibles and health care accounts- reduce health costs, but there is concern that enrollees indiscriminately reduce use of low-value services (e.g., unnecessary emergency department use) and high-value services (e.g., preventive care). We investigate how CDHP enrollees change use of pharmaceuticals for chronic diseases. We compare two large firms where nearly all employees were switched to CDHPs to firms with conventional health insurance plans. In the first firm’s CDHP, pharmaceuticals were subject to the deductible, while in the second firm pharmaceuticals were exempt. Employees in the first firm shifted the timing of drug purchases to periods with lower cost sharing and were more likely to use lower-cost drugs, but the largest effect of the CDHP was to reduce utilization. Employees in the second firm also reduced utilization, but did not shift the timing or use of low cost drugs. |
| JEL: | I1 I13 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20927&r=ias |
| By: | Andrew Ellul ; Chotibhak Jotikasthira ; Christian T. Lundblad ; Yihui Wang |
| Abstract: | One of the most contentious issues raised during the recent crisis has been the potentially exacerbating role played by mark-to-market accounting. Many have proposed the use of historical cost accounting, promoting its ability to avoid the amplification of systemic risk. We caution against focusing on the accounting rule in isolation, and instead emphasize the interaction between accounting and the regulatory framework. First, historical cost accounting, through incentives that arise via interactions with complex capital adequacy regulation, does generate market distortions of its own. Second, while mark-to-market accounting may indeed generate fire sales during a crisis, forward-looking institutions that rationally internalize the probability of fire sales are incentivized to adopt a more prudent investment strategy during normal times which leads to a safer portfolio entering the crisis. Using detailed, position- and transaction-level data from the U.S. insurance industry, we show that (a) market prices do serve as ‘early warning signals’, (b) insurers that employed historical cost accounting engaged in greater degrees of regulatory arbitrage before the crisis and limited loss recognition during the crisis, and (c) insurers facing mark-to-market accounting tend to be more prudent in their portfolio allocations. Our identification relies on the sharp difference in statutory accounting rules between life and P&C companies as well as the heterogeneity in implementation of these rules within each insurance type across U.S. states. Rather than promoting a shift away from market-based information, our results indicate that regulatory simplicity may be preferred to the complexity of risk-weighted capital ratios that gives rise, through interactions with accounting rules, to distorted risk-taking incentives and potential build-up of systemic risk. |
| Keywords: | Regulation; Systemic risk; Mark to market; Historical cost accounting; Fire sales; Capital ratios; Insurance companies |
| JEL: | G11 G12 G14 G18 G22 |
| Date: | 2013–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60968&r=ias |
| By: | Hallissey, Niamh (Central Bank of Ireland ) |
| Abstract: | The Central Bank of Ireland consultation paper on macro-prudential policy for residential real estate asked whether adequately insured mortgages should be exempt from the proposed loan-to-value (LTV) limit. An exemption for insured mortgages could alleviate the liquidity constraints associated with a LTV cap, particularly for first-time buyers. However, such an exemption could also reduce the effectiveness of a LTV cap in dampening the pro-cyclicality of property lending. Mortgage insurance is used in several other countries around the world and this Economic Letter examines the structure of the market in some of these countries and considers any policy implications for the Irish market. |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:05/el/15&r=ias |
| By: | Dunn, Abe (U.S. Bureau of Economic Analysis ); Shapiro, Adam Hale (Federal Reserve Bank of San Francisco ) |
| Abstract: | This paper studies the impact of Medicare Part D on mortality for the population over the age of 65. We identify the effects of the reform using variation in drug coverage across counties before the reform was implemented. Studying mortality rates immediately before and after the reform, we find that cardiovascular-related mortality drops significantly in those counties most affected by Part D, while mortality rates for noncardiovascular diseases remain statistically unchanged. Estimates suggest that between 19,000 and 27,000 more individuals were alive in mid-2007 because of the Part D implementation in 2006. |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2015-04&r=ias |
| By: | Julien Matheron (Banque de France ); Juan Rubio-Ramirez (Duke University ); Edouard Challe (Ecole Polytechnique ); Xavier Ragot (Paris School of Economics ) |
| Abstract: | This paper introduces incomplete insurance against idioyncratic labour income risk into an otherwise standard New Keynesian business cycle model with involuntary unemployment. Following an adverse monetary policy shock that lowers aggregate demand, job creation is discouraged and unemployment risk persistently rises. Imperfectly insured households rationally respond to the rise in idiosyncratic income uncertainty by increasing precautionary saving, thereby cutting consumption and depleting aggregate demand even further; this in turn magnifies the initial labour market contraction and further raises unemployment risk. A Bayesian estimation of the model is used to assess the contribution of time-varying precautionary saving to movements in aggregate consumption. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:1021&r=ias |
| By: | Boone, J. (Tilburg University, TILEC ); Schottmuller, C. (Tilburg University, TILEC ) |
| Abstract: | We provide a modeling framework to think about selective contracting in the health care sector. Two health care providers differ in quality and costs. When buying health insurance, consumers observe neither provider quality nor costs. We derive an equilibrium where health insurers signal provider quality through their choice of provider network. Selective contracting focuses on low cost providers. Contracting both providers signals high quality. Market power tends to lower quality and lead to inefficiency. In a dynamic extension of the model, providers under-invest in quality while there can be both over and under-investment in cost reductions if there is a monopoly insurer while an efficient investment equilibrium exists with insurer competition. |
| Keywords: | selective contracting; exclusive contracts, common; common contracts; managed care; health care quality; signaling |
| JEL: | D86 I11 L13 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutil:5876be16-fe6d-49b8-9b33-4cbb9b4e0618&r=ias |
| By: | Boone, Jan ; Schottmüller, Christoph |
| Abstract: | We provide a modeling framework to think about selective contracting in the health care sector. Two health care providers differ in quality and costs. When buying health insurance, consumers observe neither provider quality nor costs. We derive an equilibrium where health insurers signal provider quality through their choice of provider network. Selective contracting focuses on low cost providers. Contracting both providers signals high quality. Market power tends to lower quality and lead to inefficiency. In a dynamic extension of the model, providers under-invest in quality while there can be both over and under-investment in cost reductions if there is a monopoly insurer while an efficient investment equilibrium exists with insurer competition. |
| Keywords: | common contracts; exclusive contracts; health care quality; managed care; selective contracting; signaling |
| JEL: | D86 I11 L13 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10381&r=ias |
| By: | Schreiber, Philipp ; Weber, Martin |
| Abstract: | When entering retirement most people face the decision whether they would like their defined contribution account balance paid as a lump sum or to annuitize the amount. The fact that people tend to choose the lump sum even if economic reasons suggest not to is called the annuity puzzle. In a large online survey, we find that people behave time inconsistent: older people have a stronger tendency to choose the lump sum than younger people. This effect is considerably stronger for participants that answer simple time preference questions inconsistently. Our findings suggest to think about precommitment devices for the annuitization decision. |
| Keywords: | annuities; annuity puzzle; behavioral finance; insurance; longevity risk; survey study |
| JEL: | D14 D91 G02 H55 J14 J26 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10383&r=ias |
| By: | Lara Hulsey ; Anne Gordon ; Joshua Leftin ; Nicholas Beyler ; Allen Schirm ; Claire Smither-Wulsin ; Will Crumbley |
| Keywords: | NSLP, School Lunch Program, School Breakfast Program, Direct Certification, Children, Medicaid Benefits |
| JEL: | I0 I1 |
| Date: | 2015–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:b125e6c0a75c4149b3555feb0ff9e451&r=ias |
| By: | Lara Hulsey ; Anne Gordon ; Joshua Leftin ; Claire Smither-Wulsin ; Allen Schirm Nicholas Beyler ; Anna Comerford ; Jessica Galin ; Brian Estes ; Carole Trippe |
| Keywords: | NSLP, School Lunch Program, School Breakfast Program, Direct Certification, Children, Medicaid Benefits |
| JEL: | I0 I1 |
| Date: | 2015–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:94e0e34010d7438a818d65b7beaea847&r=ias |
| By: | Marton, James ; Snyder, Angela ; Zhou, Mei |
| Abstract: | This paper examines the impact of Deficit Reduction Act of 2005 mandated citizenship verification requirements on the Medicaid coverage of children using state administrative data from Georgia. Our analysis focuses on children enrolled in Medicaid prior to the reform in the eligibility category for which the reform is most likely to be binding. We find that these children were slightly more likely to exit during the first "high impact" recertification in which the enhanced citizenship verification was binding than children whose first recertification occurred just prior to the reform. In addition, we observe a slightly lower re-entry probability among children exiting during a "high impact" first recertification. Assuming at least some of the exiting children are non-citizens, the fact that the exit and re-entry rates associated with a “high impact” first recertification are only modestly different from other first recertification months suggests that the reform is probably not having a dramatic impact on citizens. |
| Keywords: | Medicaid; Child Health; Income Verification |
| JEL: | I18 I38 J13 |
| Date: | 2015–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:62311&r=ias |