nep-ias New Economics Papers
on Insurance Economics
Issue of 2016‒04‒09
sixteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Optimal Disability Insurance and Unemployment Insurance With Cyclical Fluctuations By Hsuan-Chih (Luke) Lin
  2. The impact of farmers' risk preferences on the design of an individual yield crop insurance By Laurent Piet; Douadia Bougherara
  3. Cities Expanding Health Access for Children and Families By Cara Orfield; Sheila Hoag; Debra Lipson
  4. Optimal dividend payments for a two-dimensional insurance risk process By Pablo Azcue; Nora Muler; Zbigniew Palmowski
  5. Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap By Kaivan Munshi; Mark Rosenzweig; ;
  6. Life Insurance Holdings and Well-Being of Surviving Spouses By Harris, Timothy; Yelowitz, Aaron
  7. Econometric evaluation of a placement coaching program for recipients of disability insurance benefits in Switzerland By Hagen, Tobias
  8. Uptake of Health Insurance and the Productive Safety Net Program in Rural Ethiopia By Shigute, Zemzem; Mebratie, Anagaw Derseh; Sparrow, Robert; Yilma, Zelalem; Alemu, Getnet; Bedi, Arjun S.
  9. The Market for Paid Sick Leave By Markussen, Simen; Røed, Knut
  10. Beyond Job Lock: Impacts of Public Health Insurance on Occupational and Industrial Mobility By Ammar Farooq; Adriana Kugler
  11. Can a bank run be stopped? Government guarantees and the run on Continental Illinois By Mark A Carlson; Jonathan Rose
  12. Key Determinants of Demand, Credit Underwriting, and Performance on Government-Insured Mortgage Loans in Russia By Lozinskaia Agata; Ozhegov Evgeniy
  13. Union Debt Management By Equiza-Goni, Juan; Faraglia, Elisa; Oikonomou, Rigas
  14. Detecting Potential Overbilling in Medicare Reimbursement via Hours Worked By Hanming Fang; Qing Gong
  15. Moral-Hazard-Free First-Best Unemployment Insurance By Parsons, Donald O.

  1. By: Hsuan-Chih (Luke) Lin (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: This paper studies the optimal joint design of disability insurance and unemployment insurance in an environment with moral hazard, when an individual’s health status is private information, taking into account cyclical fluctuations. I first show how disability benefits and unemployment benefits vary with aggregate economic conditions in an optimal contract that resolves this information problem. I then consider a calibrated version of the model and study the quantitative implications of changing from the current system to the optimal one. Last, in a special case, I demonstrate that the optimal joint insurance system can be implemented using a relatively simple model: by allowing workers to save or borrow using a bond and by providing flow payments and lump-sum transfers/payments, where the interest rates and the amounts paid/transferred depend on the employment or health status of the agent and the state of the economy. In the optimal system, disability benefits are designed such that the system punishes workers who stay unemployed for a long time, reducing the unemployment rate by roughly 40 percent and incurring substantial cost savings from resolving incentive problems. Using the model to implement the optimal system, I am able to analyze in details the driving forces behind the differences between the current system and the optimal system Under the optimal joint design of these insurance programs, disability insurance serves as an additional tool for the government to provide incentives for the job search. Reductions in unemployment rates and substantial cost savings can be achieved if the optimal system is adopted.
    Date: 2016–03
  2. By: Laurent Piet; Douadia Bougherara
    Abstract: Kahneman and Tversky's Cumulative Prospect Theory (CPT) has proved to be better suited for representing risk preferences than von Neumann and Morgenstern's Expected Utility Theory (EUT). We argue that neglecting this may explain to some extent why farmers do not contract crop insurance as much as they are expected to. We model the decision to contract an individual yield crop insurance for a sample of 186 French farmers. We show that 21% of the farmers who would be expected to contract assuming that their preferences are EUT, would actually not do so if their true preferences were in fact CPT.
    Keywords: yield, crop insurance, cumulative prospect theory, premium subsidy, France
    JEL: D81 Q10 Q12 Q18
    Date: 2016
  3. By: Cara Orfield; Sheila Hoag; Debra Lipson
    Abstract: More than 16,000 uninsured children and parents nationwide enrolled in or renewed health insurance through the Cities Expanding Health Access for Children and Families initiative. The program helped protect and improve public health by using enrollment campaigns targeted at families who were eligible for but not enrolled in Medicaid or the Children’s Health Insurance Program (CHIP). The initiative was sponsored by the Atlantic Philanthropies, administered by the National League of Cities, and evaluated by Mathematica Policy Research.
    Keywords: Health, insurance, coverage, ACA, cities, CHIP, Medicaid, enrollment, foundations
    Date: 2016–03–29
  4. By: Pablo Azcue; Nora Muler; Zbigniew Palmowski
    Abstract: We consider a two-dimensional optimal dividend problem in the context of two insurance companies with compound Poisson surplus processes dividing claims and premia in some specified proportions. We solve the stochastic control problem of maximizing expected cumulative discounted dividend payments (among all admissible dividend strategies) until ruin of at least one company. We prove that the value function is the smallest viscosity supersolution of the respective Hamilton-Jacobi-Bellman equation and we describe the optimal strategy. We analize some numerical examples.
    Date: 2016–03
  5. By: Kaivan Munshi; Mark Rosenzweig; ;
    Abstract: We provide an explanation for the large spatial wage disparities and low male migration in India based on the trade-off between consumption-smoothing, provided bycaste-based rural insurance networks, and the income-gains from migration. Our theory generates two key empirically-verified predictions: (i) males in relatively wealthy households within a caste who benefit less from the redistributive (surplus-maximizing)network will be more likely to migrate, and (ii) males in households facing greater rural income-risk (who benefit more from the insurance network) migrate less. Structural estimates show that small improvements in formal insurance decrease the spatial misallocation of labor by substantially increasing migration.
    Date: 2015–10–05
  6. By: Harris, Timothy; Yelowitz, Aaron
    Abstract: Premature death of a breadwinner can have devastating financial consequences on surviving dependents. This study investigates the role of life insurance in mitigating the long-run �financial consequences of spousal mortality. Using the Health and Retirement Study, we examine individuals whose spouses died during or soon after his or her peak earnings years. Using an instrumental variables approach, we find that lump-sum life insurance payouts do not significantly influence spousal well-being.
    Keywords: Life Insurance, Poverty, Ageing
    JEL: D31 G22 I31 J32 J33 J38
    Date: 2016–03–27
  7. By: Hagen, Tobias
    Abstract: This paper evaluates a placement coaching program implemented in Zurich during 2009-2013 that focused on the reemployment of persons drawing disability insurance (DI) benefits. A private company was commissioned to implement the program. Kernel-based matching and radius matching with bias adjustment estimators combined with difference-in-differences are applied to administrative panel data. The estimates point to a successful project in terms of a reduction in DI benefits and an increase in income even in the medium-run. A simple cost-benefit analysis suggests that the project was a profitable investment for the social security system. Sensitivity analyses indicate that the results are robust to confounders and further specification issues. An interesting policy implication is that it seems possible to enhance the employment prospects of disabled persons with a relatively inexpensive intervention which does not include any explicit investments in human capital.
    Keywords: rehabilitation,placement coaching,disability,evaluation,matching
    JEL: I38 J08 J14 J64
    Date: 2016
  8. By: Shigute, Zemzem (ISS, Erasmus University Rotterdam); Mebratie, Anagaw Derseh (ISS, Erasmus University Rotterdam); Sparrow, Robert (Wageningen University); Yilma, Zelalem (ISS, Erasmus University Rotterdam); Alemu, Getnet (University of Addis Ababa, Ethiopia); Bedi, Arjun S. (ISS, Erasmus University Rotterdam)
    Abstract: Due to lack of well-developed insurance, credit and labor markets, rural families in Ethiopia are exposed to a range of covariate and idiosyncratic risks. In 2005, to deal with the consequences of covariate risks, the government implemented the Productive Safety Net Program (PSNP) - an active labor market program to build rural assets, and in 2011, to mitigate the financial consequences of ill-health, the government introduced a pilot Community Based Health Insurance (CBHI) Scheme. This paper explores whether scheme uptake and retention is affected by access to the PSNP. Based on several rounds of household level panel data and qualitative information, the analysis shows that participating in the PSNP increases the probability of CBHI uptake by 24 percentage points and enhances scheme retention by 10 percentage points. Analysis of the channels through which the PSNP influences CBHI uptake indicates that the bulk of the effect may be attributed to explicit and implicit pressure applied by government officials on PSNP beneficiaries. Whether this is a desirable approach is debatable. Nevertheless, the results suggest that membership in existing social protection programs may be leveraged to spread new schemes and potentially accelerate poverty reduction efforts.
    Keywords: productive safety net program, active labor market program, Ethiopia, community based health insurance, uptake of health insurance
    JEL: J65 J48 I13
    Date: 2016–03
  9. By: Markussen, Simen (Ragnar Frisch Centre for Economic Research); Røed, Knut (Ragnar Frisch Centre for Economic Research)
    Abstract: In many countries, general practitioners (GPs) are assigned the task of controlling the validity of their own patients' insurance claims. At the same time, they operate in a market where patients are customers free to choose their GP. Are these roles compatible? Can we trust that the gatekeeping decisions are untainted by private economic interests? Based on administrative registers from Norway with records on sick pay certification and GP-patient relationships, we present evidence to the contrary: GPs are more lenient gatekeepers the more competitive is the physician market, and a reputation for lenient gatekeeping increases the demand for their services.
    Keywords: absenteeism, gatekeeping, competition, role-conflicts
    JEL: H55 I11 I18
    Date: 2016–03
  10. By: Ammar Farooq; Adriana Kugler
    Abstract: We examine whether greater Medicaid generosity encourages mobility towards riskier but better jobs in higher paid occupations and industries. We use Current Population Survey Data and exploit variation in Medicaid thresholds across states and over time through the 1990s and 2000s. We find that moving from a state in the 10th to the 90th percentile in terms of Medicaid income thresholds increases occupational and industrial mobility by 7.6% and 7.8%. We also find that higher income Medicaid thresholds increase mobility towards occupations and industries with greater wage spreads and higher separation probabilities, but with higher wages and higher educational requirements.
    JEL: I13 J6
    Date: 2016–03
  11. By: Mark A Carlson; Jonathan Rose
    Abstract: This paper analyzes the run on Continental Illinois in 1984. We find that the run slowed but did not stop following an extraordinary government intervention, which included the guarantee of all liabilities of the bank and a commitment to provide ongoing liquidity support. Continental's outflows were driven by a broad set of US and foreign financial institutions. These were large, sophisticated creditors with holdings far in excess of the insurance limit. During the initial run, creditors with relatively liquid balance sheets nevertheless withdrew more than other creditors, likely reflecting low tolerance to hold illiquid assets. In addition, smaller and moredistant creditors were more likely to withdraw. In the second and more drawn out phase of the run, institutions with relative large exposures to Continental were more likely to withdraw, reflecting a general unwillingness to have an outsized exposure to a troubled institution even in the absence of credit risk. Finally, we show that the concentration of holdings of Continental's liabilities was a key dynamic in the run and was importantly linked to Continental's systemic importance.
    Keywords: bank runs, deposit insurance, deposit guarantee, financial crisis
    Date: 2016–03
  12. By: Lozinskaia Agata; Ozhegov Evgeniy
    Abstract: This research analyses the process of lending from Russian state-owned mortgage provider. Two-level lending and insurance of mortgage system lead to substantially higher default rates for insured loans. This means that underwriting incentives for regional operators of government mortgage loans perform poorly. We use loan-level data of issued mortgage by one regional government mortgage provided in order to understand the interdependence between underwriting, choice of contract terms including loan insurance by borrower and loan performance. We found an evidence of a difference in credit risk measures for insured and uninsured loans and interest income.
    JEL: C36 D12 R20
    Date: 2016–03–24
  13. By: Equiza-Goni, Juan; Faraglia, Elisa; Oikonomou, Rigas
    Abstract: We study the role of government debt maturity in a monetary union in the absence of fiscal transfers across countries. Our key finding is that fi scal hedging is only possible when spending represents an aggregate shock in the union. In the case of idiosyncratic disturbances in spending it is not possible to target a portfolio which provides fi scal insurance to the governments: the allocation is one of incomplete financial markets. These implications are in line with the empirical evidence. Using a sample of 5 Euro area countries and historical holding period returns on government debt, we find that fiscal insurance is not signifi cant against country speci fic shocks however, it is signifi cant against aggregate shocks. Our analysis extends the theoretical results of the literature on optimal fiscal policy without state contingent debt to a two country model. We show that in the two country setup and under an incomplete market the optimal tax schedule, consumption and leisure follow a random walk.
    Keywords: Debt Management; Fiscal policy; Government Debt; Maturity Structure; Tax Smoothing
    JEL: E43 E62 H63
    Date: 2016–03
  14. By: Hanming Fang; Qing Gong
    Abstract: Medicare overbilling refers to the phenomenon that providers report more and/or higher-intensity service codes than actually delivered to receive higher Medicare reimbursement. We propose a novel and easy-to-implement approach to detect potential overbilling based on the hours worked implied by the service codes physicians submit to Medicare. Using the Medicare Part B Fee-for-Service (FFS) Physician Utilization and Payment Data in 2012 and 2013 released by the Centers for Medicare and Medicaid Services (CMS), we first construct estimates for physicians' hours spent on Medicare Part B FFS beneficiaries. Despite our deliberately conservative estimation procedure, we find that about 2,300 physicians, or 3% of those with a significant fraction of Medicare Part B FFS services, have billed Medicare over 100 hours per week. We consider this implausibly long hours. As a benchmark, the maximum hours spent on Medicare patients by physicians in National Ambulatory Medical Care Survey data are 50 hours in a week. Interestingly, we also find suggestive evidence that the coding patterns of the flagged physicians seem to be responsive to financial incentives: within code clusters with different levels of service intensity, they tend to submit more higher intensity service codes than unflagged physicians; moreover, they are more likely to do so if the marginal revenue gain from submitting mid- or high-intensity codes is relatively high.
    JEL: H51 I13 I18
    Date: 2016–03
  15. By: Parsons, Donald O. (George Washington University)
    Abstract: Unemployment insurance replacement rates world-wide are well below 100 percent, a fact often attributed to search moral hazard concerns. As Blanchard and Tirole (2008) have illustrated, however, neither search nor layoff moral hazard (firing cost) distortions need arise in first-best insurance plans. Their counterexample depends on the functional form of the state utility function--utility with a single argument, consumption plus monetized leisure. The monetized leisure model is unattractive if leisure is a choice variable, however, and a review of the optimal UI literature reveals a surprising variety of alternative utility function assumptions. A standard neoclassical utility function is used to characterize the utility function conditions required to generate moral-hazard-free (MHF) first-best contracts. Two conditions emerge: (i) the necessary condition that leisure and consumption be substitutes (the cross-derivative of consumption and leisure be negative) and (ii) the sufficient condition that leisure be an inferior good, Rosen (1985). Leisure appears to be a normal good, which rules out the possibility of first-best moral-hazard-free (FB MHF) utility structures, but the first-best UI replacement rate remains very much an open question. The rich empirical literature on the "retirement consumption paradox" suggests that the rate is below 100 percent, easing moral hazard concerns, if not eliminating them.
    Keywords: unemployment insurance, utility functions, moral hazard, firing costs, consumption, retirement
    JEL: J65 J41 J33 J08
    Date: 2016–03
  16. By: Michela Ponzo; Vincenzo Scoppa (Dipartimento di Economia, Statistica e Finanza, Università della Calabria)
    Abstract: We use a Regression Discontinuity Design (RDD) to evaluate the impact of cost-sharing on the use of health services. In the Italian health system, individuals reaching age 65 and earning low incomes are given total exemption from cost-sharing for health services consumption. Since the probability of exemption changes discontinuously at age 65, we use a Fuzzy RDD in which the age threshold is used as an instrument for exemption. We find that prescription drug consumption, specialist visits and diagnostic checks remarkably increase with exemption. However, using several measures of health outcomes we do not find any change in individual health.
    Keywords: Health Insurance, Healthcare Demand, Cost-Sharing, Moral Hazard, Health Outcomes, Fuzzy Regression Discontinuity Design, Instrumental Variables
    JEL: I10 I13 I11 I18 C26
    Date: 2016–03

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