nep-ias New Economics Papers
on Insurance Economics
Issue of 2015‒10‒04
thirteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Optimal Health Insurance in the Presence of Risky Health Behaviors By Osman Furkan Abbasoglu
  2. Employment and wage insurance within firms: Worldwide evidence By Ellul, Andrew; Pagano, Marco; Schivardi, Fabiano
  3. The Welfare Cost of Inflation Risk Under Imperfect Insurance By Olivier Allais; Xavier Ragot; Edouard Challe; Yann Algan
  4. The Pros and Cons of Sick Pay Schemes: Testing for Contagious Presenteeism and Shirking Behavior By Stefan Pichler; Nicolas R. Ziebarth
  5. Risk management in light of corporate Governance By Ahmad khateeb
  6. Should UI Eligibility Be Expanded to Low-Earning Workers? Evidence on Employment, Transfer Receipt, and Income from Administrative Data By Pauline Leung; Christopher J. O'Leary
  7. Research Ideas for the Journal of Health & Medical Economics: Opinion By Chia-Lin Chang; Michael McAleer
  8. Ambiguity on the Insurer’s Side : The Demand for Insurance By Massimiliano AMARANTE; Mario GHOSSOUB; Edmund PHELPS
  9. Couples' and Singles’ Savings After Retirement By Mariacristina De Nardi; Eric French; John Bailey Jones
  10. Sovereign Debt Renegotiation and Credit Default Swaps By Juliana Salomao
  11. Modeling and projecting mortality. A new model of heterogeneity and selection in survivorship By Hans Oluf Hansen
  12. The future’s so bright, I gotta wear sunscreen: Dispositional optimism and preferences for prioritizing health care By LUYTEN, Jeroen; DESMET, Pieter; KESSELS, Roselinde; GOOS, Peter; BEUTELS, Philippe
  13. An Implementation Analysis of States' Experiences in Transitioning "Stairstep" Children from Separate CHIP to Medicaid By Cara Orfield; Sean Orzol; Lauren Hula

  1. By: Osman Furkan Abbasoglu
    Abstract: This paper develops a model of risky health behaviors to explore the optimal cost-sharing mechanism in a single provider health insurance system in which everyone contributes the same amount. In this economy, health insurance provides coverage against controllable health outcomes, and idiosyncratic health shocks. The model is calibrated to the U.S. economy using the Medical Expenditures Panel Survey dataset. I find that the optimal set of policies is the one in which workers pay 30 percent of their health care bills while retirees pay 20 percent. Welfare gains mostly come from the healthy who prefers less generous health insurance policies.
    Keywords: Health insurance, Life cycle model, Medical expenditures
    JEL: D91 E60 I12
    Date: 2015
  2. By: Ellul, Andrew; Pagano, Marco; Schivardi, Fabiano
    Abstract: We investigate the determinants of firms' implicit insurance to employees, using a difference-indifference approach: we rely on differences between family and non-family firms to identify the supply of insurance, and exploit variation in unemployment insurance across and within countries to gauge workers' demand for insurance. Using a firm-level panel from 41 countries, we find that family firms feature more stable employment, greater wage flexibility and lower labor cost than non-family ones. Employment stability in family firms is greater, and the wage discount larger, in countries with more generous public unemployment insurance: private and public provision of employment insurance are substitutes.
    Keywords: risk-sharing,insurance,social security,unemployment,wages,family firms
    JEL: G31 G32 G38 H25 H26 M40
    Date: 2015
  3. By: Olivier Allais (Inra); Xavier Ragot (Paris School of Economics); Edouard Challe (Ecole Polytechnique); Yann Algan (Sciences Po)
    Abstract: What are the costs of inflation fluctuations and who bears those costs? In this paper, we investigate this question by means of a quantitative incomplete-market, heterogenous-agent model wherein households hold real and nominal assets and are subject to both idiosyncratic labor income shocks and aggregate inflation risk. Inflation risk is found to generates signicant welfare losses for most households, i.e., between 1 and 1.5 percent of permanent consumption. The loss is small or even negative for households at the very top of the productivity and/or wealth distribution. A key feature of our analysis is a nonhomothetic specication for households' preferences towards money and consumption goods. Unlike traditional specications, ours allows the model to reproduce the broad features of the distribution of monetary assets (in addition to being consistent with the distribution of nonmonetary assets).
    Date: 2015
  4. By: Stefan Pichler; Nicolas R. Ziebarth
    Abstract: This paper proposes a test for the existence and degree of contagious presenteeism and negative externalities in sickness insurance schemes. First, we theoretically decompose moral hazard into shirking and contagious presenteeism behavior and derive testable conditions. Then, we implement the test 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. Lastly, using Google Flu data and the staggered implementation of US sick leave reforms, we show that flu rates decrease after employees gain access to paid sick leave.
    Keywords: Sickness Insurance, Paid Sick Leave, Presenteeism, Contagious Diseases, Infections, Negative Externalities, Shirking, US, Germany
    JEL: I12 I13 I18 J22 J28 J32
    Date: 2015
  5. By: Ahmad khateeb (al-hussein bin talal university)
    Abstract: Corporate Governance operations are carried out by representatives of stakeholders to provide supervision of risk management and control risks of the organization and the emphasis on the adequacy of controls to avoid these risks, which leads to the direct contribution in the achievement of goals and increase the value of the organization, and perhaps is the question "of these actors that contribute to risk management based on rules of corporate Governance? "The answer to this question was the subject of this research to shed light on the concept of risk management and its relationship to the corporate Governance and identification of which can contribute to identifying, measuring and testing and evaluation of risk management. And to identify the extent of the commitment of both boards of directors and the internal auditor and external auditor and audit committees the requirements of corporate governance in risk management in the insurance company and diagnosis the negative and positive aspects of practical applications for risk management and submission of proposals that would increase the effectiveness of risk management in insurance companies The results showed that there is a recognition great importance to these agencies for their role in risk management but differentiated one from the other and to promote this awareness is necessary to Adhere to the principles and standards of the International Auditing and amending legislation related to the duties of these entities and the holding of training courses, continuing all management levels to familiarize them with the elements of corporate governance and effective role in risk management.
    Keywords: corporate Governance , Risk management , insurance company , internal auditor , stakeholders
    JEL: G30 G22 G32
  6. By: Pauline Leung (Cornell University); Christopher J. O'Leary (W.E. Upjohn Institute for Employment Research)
    Abstract: Recent efforts to expand unemployment insurance (UI) eligibility are expected to increase low-earning workers' access to UI. Although the expansion's aim is to smooth the income and consumption of previously ineligible workers, it is possible that UI benefits simply displace other sources of income. Standard economic models predict that UI delays reemployment, thereby reducing wage income. Additionally, low-earning workers are often eligible for benefits from means-tested programs, which may decrease with UI benefits. In this paper, we estimate the impact of UI eligibility on employment, means-tested program participation, and income after job loss using a unique individual-level administrative data set from the state of Michigan. To identify a causal effect, we implement a fuzzy regression discontinuity design around the minimum earnings threshold for UI eligibility. Our main finding is that while UI eligibility increases jobless durations by up to 25 percent and temporarily lowers receipt of cash assistance (TANF) by 63 percent, the net impact on total income is still positive and large. In the quarter immediately following job loss, UI-eligible workers have 46-61 percent higher incomes than ineligibles.
    Keywords: Unemployment insurance, Temporary Assistance to Needy Families, TANF, Supplemental Nutrition Assistance Program, SNAP, Medicaid, welfare, public assistance, unemployment, social safety net
    JEL: J65 I38 J68
    Date: 2015–09
  7. By: Chia-Lin Chang (Department of Applied Economics Department of Finance National Chung Hsing University Taichung, Taiwan.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan)
    Abstract: The purpose of this Opinion article is to discuss some ideas that might lead to papers that are suitable for publication in the Journal of Health and Medical Economics. The suggestions include the affordability and sustainability of universal health care insurance, monitoring and managing costs associated with public and private health and medical care coverage, panel data models based on industrial organization and corporate finance, and health and medical investment finance.
    Keywords: Universal health care insurance; Public health and medical care coverage; Private health and medical care coverage; Industrial organization; Corporate finance; Health and medical investment finance.
    JEL: C54 I11 I13 I18
    Date: 2015–09
  8. By: Massimiliano AMARANTE; Mario GHOSSOUB; Edmund PHELPS
    Abstract: Empirical evidence suggests that ambiguity is prevalent in insurance pricing and underwriting, and that often insurers tend to exhibit more ambiguity than the insured individuals (e.g., [23]). Motivated by these findings, we consider a problem of demand for insurance indemnity schedules, where the insurer has ambiguous beliefs about the realizations of the insurable loss, whereas the insured is an expected-utility maximizer. We show that if the ambiguous beliefs of the insurer satisfy a property of compatibility with the non-ambiguous beliefs of the insured, then there exist optimal monotonic indemnity schedules. By virtue of monotonicity, no ex-post moral hazard issues arise at our solutions (e.g., [25]). In addition, in the case where the insurer is either ambiguity-seeking or ambiguity-averse, we show that the problem of determining the optimal indemnity schedule reduces to that of solving an auxiliary problem that is simpler than the original one in that it does not involve ambiguity. Finally, under additional assumptions, we give an explicit characterization of the optimal indemnity schedule for the insured, and we show how our results naturally extend the classical result of Arrow [5] on the optimality of the deductible indemnity schedule.
    Keywords: optimal insurance, deductible, ambiguity, choquet integral, distorted probabilities
    JEL: G22
    Date: 2015
  9. By: Mariacristina De Nardi (University College of London, Federal Reserve Bank of Chicago, Institute for Fiscal Studies, and NBER); Eric French (University College of London, Federal Reserve Bank of Chicago, and Institute for Fiscal Studies); John Bailey Jones (SUNY-Albany)
    Abstract: We model the saving problem of retired couples and singles facing uncertain longevity and medical expenses in presence of means-tested social insurance. Households can save to self-insure against uncertain longevity and medical expenses, and to leave bequests. Individuals in a couple can be altruistic towards their spouse and other heirs and split bequests optimally. Single people can care about leaving bequests to children and others. Using AHEAD data, we first estimate the model and we then evaluate the relative importance of the various savings motives and the risk exposure of couples’ versus singles.
    Date: 2015–07
  10. By: Juliana Salomao (University of Minnesota)
    Abstract: A credit default swap (CDS) contract provides insurance against default. After a country defaults, the country and its lenders usually negotiate over the share of the defaulted debt to be repaid. This paper incorporates CDS contracts into a sovereign default model and demonstrates that the existence of a CDS market results in lower default probability, higher debt levels, and lower financing costs for the country. Since the CDS payout is not automatically triggered by losses from renegotiations, the lender needs to be compensated for lower expected insurance payments. This leads to higher debt repayment in renegotiation, decreasing the benefits of defaulting, and hence allowing the country to borrow more at lower rates. Uncertainty over the insurance payout when the debt is renegotiated explains why in the data, as the output declines, the CDS spread becomes lower than the bond spread. Furthermore, this pricing dynamic during a debt crisis can be used to infer market perceptions of the probability of the CDS paying out after a renegotiation. The model is calibrated to Greek data and shows that increasing CDS levels from 0 to 5% of debt lowers the unconditional default probability from 2.6% to 2.0% per year with no impact on debt level. Further increasing the CDS to 40% of debt increases the equilibrium debt level by 15%, but also increases the probability of default to 3.1%.
    Date: 2015
  11. By: Hans Oluf Hansen (Department of Economics, University of Copenhagen)
    Abstract: The demographic and epidemiological literature offers abundant examples of a range of shortcomings of statistical modeling to describe mortality by sex, age, time/cohort, and cause-of-death. Statistical modeling of mortality operating with implicitly homogenous sub-groupings exposed to mortality risk fails to consider latent biological heterogeneity at the level of individuals, and thereby important biological and social selection of survivorship. Defined on the state space of the simple life model, this study presents a proportional hazard model that makes up for such drawbacks as far as latent biological heterogeneity is concerned. The model describes heterogeneity and selection in individual survivorship by iterative stochastic micro simulation using cohort-based population mortality as an empirical benchmark. The model offers efficient linkage between past assorted mortality, on one hand, and informed anticipation of future heterogeneous survivorship, on the other hand. The combination of stochastic micro-simulation and log-linear modeling of the period effect or trend uncovered under the model makes the new Heterogeneity and Selection Model a powerful analytic and predictive tool of survivorship. Postulating a trend independent of age makes the popular Lee-Carter model (1992) unfit for professional demographic and actuarial use. Moreover, by sweeping latent biological heterogeneity under the rug, mortality analysis and projection based on central rates such as the Lee-Carter model (1992) underrates mortality in the mature and elderly ages. This is demonstrated by comparing current official mortality projections of Sweden, Denmark, and England & Wales to a set of alternative mortality projections under the Heterogeneity and Selection Model.
    Keywords: biodemography, heterogeneity and selection, stochastic micro-simulation, projection of survivorship
    JEL: J1 J11 J11 J14 J17
    Date: 2015–09–22
  12. By: LUYTEN, Jeroen; DESMET, Pieter; KESSELS, Roselinde; GOOS, Peter; BEUTELS, Philippe
    Abstract: Priority setting in health care involves many complex social value judgments. Whereas a wide body of empirical research has emerged that describe how people make these judgments, little is known about the psychological background against which they are made. In this study, we investigate whether the character trait of dispositional optimism, i.e. anticipating a positive or negative future, influences the way people think about priority setting in health care. We do this by linking a representative sample of the Belgian population’s (N=750) responses on the Revised Life Orientation Test to their responses to a discrete choice experiment (DCE) about priority setting. We find that more pessimistic individuals are on average in worse (self-reported) health, are younger, are more likely to smoke and are less likely to have a university degree than their more optimistic counterparts. Controlling for these respondent characteristics, we find that dispositional optimism indeed matters to priority setting. “Pessimists” are less willing to invest limited resources in prevention and are less in support of prioritizing younger generations over older ones.
    Keywords: Equity, Prevention, Allocation, Personality, Discrete choice experiment
    JEL: C25 C99 I18 I19 H4
    Date: 2015–08
  13. By: Cara Orfield; Sean Orzol; Lauren Hula
    Abstract: This report describes strategies for planning and implementing the transition, as well as challenges experienced, in ten states. The practices identified could inform how any future large-scale transitions of children’s coverage are implemented.
    Keywords: Medicaid, CHIP, transitions in coverage
    JEL: I
    Date: 2015–09–03

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.