nep-ias New Economics Papers
on Insurance Economics
Issue of 2015‒08‒19
nine papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Health Care Insurance Payment Policy when the Physician and Patient May Collude By Bardey, David; Li, Sanxi; Wu, Yaping
  2. Employment-Based Health Insurance and Aggregate Labor Supply By Zhigang Feng; Kai Zhao
  3. Appendix II to: Crop Insurance Savings Accounts: A Viable Alternative to Crop Insurance? By Ramirez, Octavio A.
  4. Influence of Economic Factors on the Credit Rating Transitions and Defaults of Credit Insurance Business By Anisa Caja; Quentin Guibert; Frédéric Planchet
  6. Unsticking the Flypaper Effect in an Uncertain World By Carlos A. Vegh; Guillermo Vuletin
  7. Children, time allocation and consumption insurance By Richard Blundell; Luigi Pistaferri; Itay Saporta-Eksten
  8. Access to Finance: Microfinance Innovations in the People’s Republic of China By Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB)
  9. Influence de la partition homme/femme et de l’expérience kilométrique dans l’assurance automobile By Alexandre Mornet; Patrick Leveillard; Stéphane Loisel

  1. By: Bardey, David; Li, Sanxi; Wu, Yaping
    Abstract: This paper analyzes the three-party contracting problem among the payer, the patient and the physician when the patient and the physician may collude to exploit mutually beneficial opportunities. Under the hypothesis that side transfer is ruled out, we analyze the mechanism design problem when the physician and the patient submit the claim to the payer through a reporting game. To induce truth telling by the two agents, the weak collusion-proof insurance payment mechanism is such that it is sufficient that one of them tells the truth. Moreover, we identify trade-offs of a different nature faced by the payer according to whether incentives are placed on the patient or the physician. We also derive the optimal insurance scheme for the patient and the optimal payment for the physician. Moreover, we show that if the payer is able to ask the two parties to report the diagnosis sequentially, the advantage of the veto power of the second agent allows the payer to achieve the first-best outcome.
    Keywords: collusion, falsification, health care insurance, physician payment.
    JEL: D82 I18
    Date: 2015–05
  2. By: Zhigang Feng (University of Illinois at Urbana-Champaign); Kai Zhao (University of Connecticut)
    Abstract: We study the impact of the employment-based health insurance system on aggregate labor supply in a general equilibrium life cycle model with incomplete markets and idiosyncratic risks in both income and medical expenses. We find that employment-based health insurance provides Americans with an extra incentive to work and is an important reason why they work much more hours than Europeans. In contrast to Europeans, who get universal health insurance from the government, most working-age Americans get health insurance through their employers. Since medical expenses are large and volatile, and there is no good alternative available in the private market, health insurance from employers can be highly valuable to risk-averse individuals (much more than its actuarially fair cost), thus providing them with extra incentive to work. We calibrate the benchmark model to match the US system using the Medical Expenditure Panel Survey dataset. The results of our quantitative experiments suggest that different health insurance systems account for more than half of the difference in aggregate hours that Americans and Europeans work. Furthermore, our model can also match several other relevant empirical observations, that is, the different employment rates and the different shares of full-time/part-time workers in the U.S. and Europe. When our model is extended to include the different tax rates in the U.S. and Europe, a main existing explanation for the difference in aggregate labor supply, the extended model can account for a major portion of the difference in aggregate hours that Americans and Europeans work.
    Keywords: Labor Supply, Employment-Based Health Insurance, General Equilibrium
    JEL: E20 E60
    Date: 2015–08
  3. By: Ramirez, Octavio A.
    Abstract: Given the procedures to be followed in this research, time series of price and yield realizations that are representative of what farmers might face in future years are needed to evaluate the feasibility of the proposed CISA. Reliable parametric estimates of future price and yield distributions are required to generate those realizations and sufficiently long historical price and yield time series are necessary in order to estimate those distributions. While long time series are available for most major commodity prices, multi-decade farm-level yield records are not as common. Fortunately, the University of Illinois Endowment Farms project has been collecting such records from 26 different “representative” corn producers during the last 50 years. Therefore, the “test-of-concept” analyses presented in this article are conducted for the specific case of corn producers in the State of Illinois.
    Keywords: Financial Economics,
    Date: 2014
  4. By: Anisa Caja (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1); Quentin Guibert (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1); Frédéric Planchet (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1)
    Abstract: This paper presents a model for the determination and forecast of the number of defaults and credit changes by estimating a reduced-form ordered regression model with a large data set from a credit insurance portfolio. Similarly to banks with their classical credit risk management techniques, credit insurers measure the credit quality of buyers with rating transition matrices depending on the economical environment. Our approach consists in modeling stochastic transition matrices for homogeneous groups of firms depending on macroeconomic risk factors. One of the main features of this business is the close monitoring of covered firms and the insurer’s ability to cancel or reduce guarantees when the risk changes. As our primary goal is a risk management analysis, we try to account for this leeway and study how this helps mitigate risks in case of shocks. This specification is particularly useful as an input for the Own Risk Solvency Assessment (ORSA) since it illustrates the kind of management actions that can be implemented by an insurer when the credit environment is stressed.
    Date: 2015–07–20
  5. By: Alexis Louaas (Department of Economics, Ecole Polytechnique - CNRS - Polytechnique - X); Pierre Picard (Department of Economics, Ecole Polytechnique - CNRS - Polytechnique - X)
    Abstract: We analyze the optimal insurance coverage for high severity-low probability accidents, both from theoretical and applied standpoints. Such accidents qualify as catastrophic when their risk premium is a non-negligible proportion of the victims’ wealth, although the probability of occurrence is very small. We show that this may be the case when the individual’s absolute risk aversion is very large in the accident case. We characterize the optimal insurance contract firstly for an individual, and secondly for a firm that may be at the origin of an accident that affects the whole population. The optimal indemnity schedule converges to a limit when the probability of the accident tends to zero. In the case of corporate civil liability, this limit schedule is a straight deductible contract that corresponds to an indemnification of victims ranked in order of priority according to the severity of their losses. We also show that the size of the deductible depends on the individuals’ risk aversion and also on the cost of contingent risk capital that is required to sustain the indemnity payment, should an accident occur. The empirical part of the paper is an application of these general principles to the case of nuclear accidents. Large scale nuclear accidents are typical examples of high severity-low probability risks. We calibrate a model on French data in order to estimate the optimal liability ceiling of an electricity producer in the nuclear energy sector. We use data drawn from the cat-bond markets to estimate the cost of contingent capital for low probability events, and we show that the minimal corporate liability adopted in 2004 through the revision of the Paris Convention is probably lower than the level that would correspond to an optimal risk coverage of the population.
    Date: 2014–12–22
  6. By: Carlos A. Vegh; Guillermo Vuletin
    Abstract: We provide a novel explanation for the flypaper effect based on insurance arguments. In our model, the flypaper effect arises due to the differential response of precautionary savings to private income or fiscal transfers shocks in an uncertain world with incomplete markets. The model generates two testable implications: (i) the flypaper effect is a decreasing function of the correlation between fiscal transfers and private income, and (ii) such relationship is stronger the higher is the volatility of fiscal transfers and/or private income. An empirical analysis of Argentinean provinces for the period 1963-2006 finds strong support for the model's implications.
    JEL: E21 E62 H62 H77
    Date: 2015–07
  7. By: Richard Blundell (Institute for Fiscal Studies and IFS and UCL); Luigi Pistaferri (Institute for Fiscal Studies and Stanford University); Itay Saporta-Eksten (Institute for Fiscal Studies)
    Abstract: We consider the life-cycle problem of a household that in each period decides how much to consume and how to allocate spouses’ time to work, leisure, and childcare. In an environment with uncertainty, the allocation of goods and time over the life cycle plays the further role of providing insurance against shocks. We use longitudinal data on consumption, and husband and wife separate information on hourly wages, hours of work, and time spent with children to estimate structural parameters measuring the sensitivity of consumption and time allocation choices to transitory and permanent wage shocks. These structural parameters provide a full picture regarding the ability of household to smooth marginal utility in response to shocks. In addition, information on hours of work and hours spent on childcare allows to decompose overall Frisch response into two components, one reflecting the degree of complementarity between husband’s and wife’s leisure ("companionship" or "love") and another reflecting the degree of substitutability of their childcare time in the production of childcare services.
    Date: 2015–03
  8. By: Asian Development Bank (ADB); Asian Development Bank (ADB) (East Asia Department, ADB); Asian Development Bank (ADB) (East Asia Department, ADB); Asian Development Bank (ADB)
    Abstract: The People’s Republic of China (PRC) has adopted a more market-oriented approach by promoting rural microfinance, pursuing bottom-up innovations such as group lending, various forms of guarantees, new financial products based on purchase orders and insurance policies, and better incentives for agriculture funding from financial institutions. In 2009, the PRC sought the assistance of the Asian Development Bank to study how to optimize policy choices in rural finance using both top-down and bottom-up approaches. This report presents the findings of that rural microfinance study, including valuable lessons learned from several pilot microlending programs conducted in selected provinces in the PRC. It then analyzes outstanding issues in the country’s rural and microfinance markets that need to be addressed more vigorously.
    Keywords: People's Republic of China, Microfinance, Rural Finance, Financial Innovation, Rural Financial Market, Rural Financial Institution, Rural Financial Supervision, MSE Finance, Rural Financing Difficulty, Chanyeyuan, Value Chain, Cooperative Financing, Mutual Aid Fund, Microfinance Development, Agriculture Loan, Poverty Reduction
    Date: 2015–01
  9. By: Alexandre Mornet (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1, Allianz); Patrick Leveillard (Allianz); Stéphane Loisel (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1)
    Abstract: Dans le secteur de l'assurance automobile, la décision de la Cour de Justice de l'Union européenne selon laquelle il n'est plus possible de pratiquer des tarifs selon le sexe de l'assuré, ainsi que la diffusion des dispositifs d'assurance aukilo etre, entraînent nécessairement une évolution de la gestion du risque. Dans cet article, on se base sur le portefeuilles d'Allianz en France pour répondre à ces deux problématiques. On propose de caractériser la partition homme/femme en explorant différentes méthodes statistiques comme la procédure logistique, l'analyse des correspondances multiples (ACM) ou les arbres de classification (CART). On montre qu'il est possible de compenser l'absence de la variable sexe par d'autres informations spécifique a l'assuré où a son véhicule et en particulier l'utilisation de relevés kilométriques [11]. On revient ensuite à l'utilisation des modèles linéaires généralisés (GLM) pour valider ces résultats. Dans une seconde partie, on s'intéresse à l'expérience acquise par les conducteurs novices. Cette catégorie d'assurés compte parmi les plus sensibles aux critères homme/femme dans sa tarification. Ici, les modèles additifs généralisés (GAM) permettent d'exploiter les variables numériques comme le kilométrage annuel parcouru. Nous proposons finalement d'étudier le comportement sur la route de l'assuré durant ses trois années de noviciat pour créer de nouvelles catégories de risques.
    Date: 2014–11

This nep-ias issue is ©2015 by Soumitra K. Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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