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on Insurance Economics |
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Issue of 2016‒02‒17
eleven papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Ibanez, Marcela; Dietrich, Stephan |
| Abstract: | This paper explores the impacts of traditional agricultural insurance that offers protection against climatic shocks on small-scale tobacco farmers in Colombia after a period of substantial crop failures. Our identi cation strategy bene ts from a natural experimental setup of the form in which the insurance was launched. We fnd 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. |
| JEL: | G22 O13 O12 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112887&r=ias |
| By: | Cremer, Helmuth (Toulouse School of Economics); Roeder, Kerstin (University of Augsburg) |
| Abstract: | This paper considers an economy where individuals differ in productivity and in risk. Rochet (1991) has shown that when private insurance markets offer full coverage at fair rates, social insurance is desirable if and only if risk and productivity are negatively correlated. This condition is usually shown to be satisfied for many health risks, but it appears to be violated for the old age dependency risk (mainly because longevity in turn is positively correlated with productivity). We examine the role of uniform and nonuniform social insurance to supplement a general income tax when neither public nor private insurers can observe individual risk and when it is positively correlated with wages. Consequently, a Rothschild and Stiglitz (1971) equilibrium emerges in the private insurance market and low-wage/low-risk individuals are not fully insured. We show that even when social insurance provided to the poor has a negative incentive effect, it also increases their otherwise insufficient insurance coverage. Social insurance to the rich produces exactly the opposite effects. Whichever of these effects dominates, some social insurance is always desirable. Finally, we introduce risk misperception which exacerbates the failure of private markets. The insurance term now reflects the combined failure brought about by adverse selection and misperception. Now the low-risk individuals are not only underinsured, but also pay a higher than fair rate. However, and rather surprisingly, it turns out that this does not necessarily strengthen the case for public insurance. |
| Keywords: | social insurance, optimal taxation, adverse selection, overconfidence, long-term care |
| JEL: | H21 H51 D82 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9651&r=ias |
| By: | Panthöfer, Sebastian |
| Abstract: | This paper studies risk selection between public and private health insurance when some individuals can purchase private insurance by opting out of otherwise mandatory public insurance. Using a theoretical model, I show that public insurance is adversely selected when insurers and insureds are symmetrically informed about health-related risks, and that selection can be of any type (advantageous or adverse) when insureds have private information about health risks. Drawing on data from the German Socio-Economic Panel, I find that: (1) public insurance is adversely selected under the German public health insurance with opt-out scheme, (2) individuals adversely select public insurance based on self-assessed health and advantageously select public insurance based on risk aversion, and (3) there is evidence of asymmetric information. |
| JEL: | I13 D82 H51 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113085&r=ias |
| By: | Czura, Kristina; Dequiedt, Vianney |
| Abstract: | Agricultural insurance does not only affect investment decisions in agriculture but also in a secondary, unrelated income earning activity that can serve as a risk mitigation and risk coping strategy, such as livestock farming. The value of insurance may depend on the market environment in the investment market for livestock: with complete livestock markets, agricultural insurance may be less valuable; with seasonal livestock markets and non-flexible decision making environments, agricultural insurance becomes more valuable. Using data from a lab-in-the-field experiment with agricultural decision makers in rural Senegal we study the effects of agricultural insurance on investments in livestock with complete and seasonal livestock markets. In general, insurance increases investment in livestock farming. There is a widespread willingness to pay for insurance but it does not react to the size of the insurance coverage. The value of insurance is higher in inflexible investment decisions indicating that insurance is more valuable in non-flexible decision making environments, such as incomplete and seasonal markets. |
| JEL: | C93 O16 O12 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112993&r=ias |
| By: | Landmann, Andreas; Biener, Christian; Eling, Martin; Santana, Maria Isabel |
| Abstract: | Insurance contract nonperformance relates to situations when valid claims are not paid by the insurer. We extend probabilistic insurance models to allow for such nonperformance risk as well as ambiguity regarding nonperformance and loss probabilities. We empirically test theoretical predictions from our model within a field lab experiment in a low-income setting. This is a persuasive context, since especially in emerging and poorly regulated markets there is a higher chance of contract nonperformance. In line with our predictions, insurance demand decreases by 17 percentage points in the presence of contract nonperformance risk and is reduced by a further 14 percentage points when contract nonperformance risk is ambiguous. It also seems that ambiguity does not easily disappear with experience. The results have implications for both industrialized and developing insurance markets. |
| JEL: | C91 D81 G22 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113050&r=ias |
| By: | Fossen, Frank M.; König, Johannes |
| Abstract: | We estimate the impact of a differential treatment of paid employees versus self-employed workers in a public health insurance system on the entry rate into entrepreneurship. In Germany, the public health insurance system is mandatory for most paid employees, but not for the self-employed, who usually buy private health insurance. Private health insurance contributions are relatively low for the young and healthy, and until 2013 also for males, but less attractive at the other ends of these dimensions and if membership in the public health insurance system allows other family members to be covered by contribution-free family insurance. Therefore, the health insurance system can create incentives or disincentives to starting up a business depending on the family's situation and health. We estimate a discrete time hazard rate model of entrepreneurial entry based on representative household panel data for Germany, which include personal health information, and we account for non-random sample selection. We estimate that an increase in the health insurance cost differential between self-employed workers and paid employees by 100 euro per month decreases the annual probability of entry into self-employment by 0.38 percentage points, i.e. about a third of the average annual entry rate. The results show that the phenomenon of entrepreneurship lock, which an emerging literature describes for the system of employer provided health insurance in the USA, can also occur in a public health insurance system. Therefore, entrepreneurial activity should be taken into account when discussing potential health care reforms, not only in the USA and in Germany. |
| JEL: | L26 I13 J20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112934&r=ias |
| By: | Ahrens, Steffen; Nejati, Nooshin; Pfeiffer, Philipp Ludwig |
| Abstract: | This paper studies the role of labor market institutions in business cycle fluctuations. We develop a DSGE model with search and matching frictions and incorporate a US unemployment insurance experience rating system. Layoff taxes based on experience rating finance the cost of unemployment benefits and create considerable employment adjustment costs. Our framework helps realign the search and matching model with the empirical properties of its most salient variables. The model reproduces the negative correlation between vacancies and unemployment, i.e., the Beveridge curve. Simulations show that the model generates more cyclical volatility in its key variable - the ratio of job vacancies to unemployment (labor market tightness). Moreover, layoff taxes reduce the excess sensitivity of job destruction found in Krause and Lubik (2007) and strengthen the negative correlation of job creation and job destruction. Thus, the model matches key labor market data while incorporating an important feature of the US labor market. |
| JEL: | E24 J64 J65 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112807&r=ias |
| By: | Liebert, Helge |
| Abstract: | This paper investigates the impact of medical screening on individual disability insurance benefit receipt. Using a unique policy change in Switzerland, I assess the size of award errors in disability insurance and show that improvements in medical screening can substantially reduce insurance inflow. In the absence of explicit medical screening, wrongful admissions dominate rejection errors and account for at least 14% of insurance inflow. Misclassification is tied to difficult-to-diagnose conditions, indicating inaccurate assessments by general practitioners. Reductions in full pension benefit awards are potentially substituted in part by increases in partial benefit awards. |
| JEL: | H53 H55 J14 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113224&r=ias |
| By: | van den Berg, Gerard J. (University of Mannheim); Hofmann, Barbara (University of Mannheim); Uhlendorff, Arne (CREST) |
| Abstract: | Unemployment insurance agencies may combat moral hazard by punishing refusals to apply to assigned vacancies. However, the possibility to report sick creates an additional moral hazard, since during sickness spells, minimum requirements on search behavior do not apply. This reduces the ex ante threat of sanctions. We analyze the effects of vacancy referrals and sanctions on the unemployment duration and the quality of job matches, in conjunction with the possibility to report sick. We estimate multi-spell duration models with selection on unobserved characteristics. We find that a vacancy referral increases the transition rate into work and that such accepted jobs go along with lower wages. We also find a positive effect of a vacancy referral on the probability of reporting sick. This effect is smaller at high durations, which suggests that the relative attractiveness of vacancy referrals increases over the time spent in unemployment. Overall, around 9% of sickness absence during unemployment is induced by vacancy referrals. |
| Keywords: | unemployment insurance, wage, physician, vacancy referrals, unemployment, monitoring, moral hazard |
| JEL: | J64 J65 C41 C21 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9626&r=ias |
| By: | Pichler, Stefan; Ziebarth, Nicolas R. |
| 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. |
| JEL: | I12 J22 J32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112940&r=ias |
| By: | Sachs, Dominik; Findeisen, Sebastian |
| Abstract: | We study optimal nonlinear taxation of labor income and linear taxation of capital income in a life-cycle framework with private information and idiosyncratic risk. We focus on simple history-independent tax instruments. We first analyze the welfare losses from this simplification as compared to optimal history-dependent policies. We find very small losses from restricting the complexity of savings wedges. Eliminating history dependence of labor wedges leads to larger welfare losses: moving from history dependence to age dependence yields approximately the same welfare losses as moving from age dependence to age independence and from nonlinear to linear income taxation. For optimal history- independent taxes, we provide a novel decomposition into a redistribution and an insurance component and a generalization of the top tax formula to dynamic environments. Capital taxation is desirable and yields sizable welfare gains, especially if labor income taxes are set below their optimal level. |
| JEL: | H21 H20 H23 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113099&r=ias |