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on Insurance Economics |
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Issue of 2017‒05‒14
eleven papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Hill, Ruth Vargas; Kumar, Neha; Magnan, Nicholas; Makhija, Simrin; de Nicola, Francesca; Spielman, David J.; Ward, Patrick S. |
| Abstract: | It is widely acknowledged that unmitigated risks provide a disincentive for otherwise optimal investments in modern farm inputs. Index insurance provides a means for managing risk without the burdens of asymmetric information and high transaction costs that plague traditional indemnity-based crop insurance programs. Yet many index insurance programs that have been piloted around the world have met with rather limited success, so the potential for insurance to foster more intensive agricultural production has yet to be realized. This study assesses both the demand for and the effectiveness of an innovative index insurance product designed to help smallholder farmers in Bangladesh manage risk to crop yields and the increased production costs associated with drought. Villages were randomized into either an insurance treatment or a comparison group, and discounts and rebates were randomly allocated across treatment villages to encourage insurance take-up and to allow for the estimation of the price elasticity of insurance demand. Among those offered insurance, we find insurance demand to be moderately price elastic, with discounts significantly more successful in stimulating demand than rebates. Farmers who are highly risk averse or sensitive to basis risk prefer a rebate to a discount, suggesting that the rebate may partially offset some of the implicit costs associated with insurance contract nonperformance. Having insurance yields both ex ante risk management effects and ex post income effects on agricultural input use. The risk management effects lead to increased expenditures on inputs during the aman rice-growing season, including expenditures for risky inputs such as fertilizers, as well as those for irrigation and pesticides. The income effects lead to increased seed expenditures during the boro rice-growing season, which may signal insured farmers’ higher rates of seed replacement, which broadens their access to technological improvements embodied in newer seeds as well as enhancing the genetic purity of cultivated seeds. |
| Keywords: | agriculture; investment; risk management; insurance; risk; weather hazards; drought; weather; climate; price elasticities; price formation; inputs; farm inputs; fertilizers; irrigation; pesticides; crops; yields; smallholders, index insurance; risk and uncertainty, O12 Microeconomic Analyses of Economic Development; O13 Economic Development: Agriculture, Natural Resources, Energy, Environment, Other Primary Product; Q12 Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets; G22 Insurance, Insurance Companies, Actuarial Studies, |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1630&r=ias |
| By: | Ostwald, Dennis A.; Legler, Benno; Haaf, Andreas; Schwärzler, Marion Cornelia |
| Abstract: | There is now much evidence for the vital importance of the health economy, and it is receiving more attention from social and political spheres. This development is evidenced, not least, by the increased perception of the health economy as a key economic factor in Germany. Private health insurance (PKV) plays an important role in the health economy in three respects: as an economic actor, as a financer of healthcare services, and as a provider of capital. In a first step, an earlier study determined the economic footprint of the private health insurance sector as an economic actor. In doing so, the economic significance of private health insurance was measured on the basis of official national accounts categories for the first time. The starting point for this earlier study was a change of perspective so as to view the health economy – including private health insurance – not just as a cost factor, but also from the angle of economic growth and employment. From this basis, the second step presented here measures the economic importance of private health insurance in its role as a financer of healthcare services. Unlike in the first step, the private health insurance sector’s expenditure on benefits for its members forms the subject of the study, instead of the economic activity of the sector. This expenditure finances medication and services rendered to private patients by licensed doctors and hospitals, for example. The aim of this study is to calculate the resultant gross value added and employment. The comprehensive economic footprint approach is unique in that it incorporates the economic significance of intermediate inputs (indirect effects) and the spending of employee compensation (induced effects). This study augments this approach by examining the economic effects of the additional revenue raised from private patients. Additional revenue is the sum that the entire health system would lose if private patients were insured under the statutory scheme instead of privately. This issue is relevant seeing as there is currently some debate about introducing a universal system. |
| Keywords: | Gesundheitswirtschaft; Private Krankenversicherung; Gesundheitswirtschaftliche Gesamtrechnung; ökonomischer Fußabdruck; Input-Output-Analyse; Gesundheitsleistungen; Mehrumsätze; |
| JEL: | C67 E01 I11 I13 I15 I18 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78243&r=ias |
| By: | Jin Sun; Pavel V. Shevchenko; Man Chung Fung |
| Abstract: | Variable annuities, as a class of retirement income products, allow equity market exposure for a policyholder's retirement fund with electable additional guarantees to limit the downside risk of the market. Management fees and guarantee insurance fees are charged respectively for the market exposure and for the protection from the downside risk. We investigate the impact of management fees on the pricing of variable annuity guarantees under optimal withdrawal strategies. Two optimal strategies, from policyholder's and from insurer's perspectives, are respectively formulated and the corresponding pricing problems are solved using dynamic programming. Our results show that when management fees are present, the two strategies can deviate significantly from each other, leading to a substantial difference of the guarantee insurance fees. This provides a possible explanation of lower guarantee insurance fees observed in the market. Numerical experiments are conducted to illustrate our results. |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1705.03787&r=ias |
| By: | Attar, Andrea; Mariotti, Thomas; Salanié, François |
| Abstract: | We show that a necessary and sufficient condition for entry to be unprofitable in markets with adverse selection is that that no buyer type be willing to trade at a price above the expected unit cost of serving those types who are weakly more eager to trade than her. We provide two applications of this result. First, we characterize cases in which market breakdown occurs, thereby generalizing the main result of Hendren (2013). Second, we characterize entry-proof tariffs on nonexclusive active markets, thereby generalizing the main result of Glosten (1994). Our analysis paves the way to new tests of adverse selection, notably besides the case of inactive markets studied by Hendren (2013). |
| Keywords: | Adverse Selection, Entry Proofness, Market Breakdown, Nonexclusivity. |
| JEL: | D43 D82 D86 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:31632&r=ias |
| By: | Andrea Attar (DEF and CEIS, Università di Roma "Tor Vergata" and Toulouse School of Economics); Thomas Mariotti (Toulouse School of Economics, CNRS); François Salanié (Toulouse School of Economics, INRA) |
| Abstract: | We show that a necessary and sufficient condition for entry to be unprofitable in markets with adverse selection is that that no buyer type be willing to trade at a price above the expected unit cost of serving those types who are weakly more eager to trade than her. We provide two applications of this result. First, we characterize cases in which market breakdown occurs, thereby generalizing the main result of Hendren (2013). Second, we characterize entry-proof tariffs on nonexclusive active markets, thereby generalizing the main result of Glosten (1994). Our analysis paves the way to new tests of adverse selection, notably besides the case of inactive markets studied by Hendren (2013). |
| Keywords: | Adverse Selection, Entry Proofness, Market Breakdown, Nonexclusivity |
| JEL: | D43 D82 D86 |
| Date: | 2017–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:403&r=ias |
| By: | Sergi Jiménez-Martín; Arnau Juanmarti Mestres; Judit Vall-Castello |
| Abstract: | This article evaluates the effectiveness of hiring subsidies targeted to people with disabilities. By exploiting the timing of implementation among the different Spanish regions of a subsidy scheme implemented in Spain during the period 1990-2014, we employ a differencesin- differences approach to estimate the impact of the scheme on the probability of DI beneficiaries of transiting to employment and on the propensity of individuals of entering the DI program. Our results show that the introduction of the subsidy scheme is in general ineffective at incentivizing transitions to employment, and in some cases it is associated with an increased propensity of transiting to DI. Furthermore, we show that an employment protection component incorporated to the subsidy scheme, consisting in the obligation for the employer to maintain the subsidized worker in employment, is associated with less transitions to permanent employment, more transitions to temporary employment and more transitions to DI, suggesting that these type of employment protection measures can have undesired effects for people with disabilities. |
| Keywords: | disability, employment subsidies, labor market transitions, disability insurance, differences-in-differences |
| JEL: | H24 H55 J08 J14 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:967&r=ias |
| By: | Sokolovska, Olena |
| Abstract: | The presence of different risk factors in international trade gives evidence of the necessity of support in gaps that may affect exporters’ activity. To maximize the trade volumes and in the same time to minimize the exporters’ risks the stakeholders use trade credit insurance. The paper provides analysis of conceptual background of the trade credit insurance in the world. We analyzed briefly the problems, arising in insurance markets due to asymmetric information, such as adverse selection and moral hazard. Also we discuss the main stages of development of trade credit insurance in countries worldwide. Using comparative and graphical analysis we provide a brief evaluation of the dynamics of claims and recoveries for different forms of trade credit insurance. We found that the claims related to the commercial risk for medium and long trade credits in recent years exceed the recoveries, while with the political risk the reverse trend holds. And we originally consider these findings in terms of information asymmetry in the trade credit insurance differentiated by type of risk. |
| Keywords: | trade credit insurance, export credit, international trade, international finance |
| JEL: | F10 F39 G22 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79057&r=ias |
| By: | JJ Capuno (School of Economics, University of the Philippines Diliman); AD Kraft (School of Economics, University of the Philippines Diliman); LC Poco (School of Economics, University of the Philippines Diliman); SA Quimbo (School of Economics, University of the Philippines Diliman); CAR Tan, Jr. (School of Economics, University of the Philippines Diliman) |
| Abstract: | Despite the country's policies and programs towards universal health care, health is not improving as well as expected, which suggests that households still face significant barriers to their choice of and access to health care, and their timing of use of health services. Using a nationally representative sample of households, we investigate the factors that affect the timing of outpatient care and inpatient care utilization. We define two indicators of delay in seeking care, namely: one for outpatient care, as the number of days from onset of symptom until visit of a clinic or provider, and another for inpatient care, as the number of days from doctor's advice until hospital confinement. Given our dependent variables are measured in terms days until visit, we estimate proportional hazard models (Cox, Weibull and Gompertz) to identify the significant factors associated with delay in seeking health care services. The factors associated with delay are classified in terms of health needs, financial access, physical access, opportunity costs, other household factors and location. Our findings suggest health needs and opportunity costs are the main factors associated with the delay in seeking outpatient and inpatient care services among Filipinos in need of medical attention. Perhaps more importantly from a policy perspective, we also find that physical and financial access variables do not significantly affect timing of care. We draw some implications from the results on increasing access to health care, through improvements in awareness of social health insurance and in the actual quality of health facilities. We also identify directions for future research. |
| Keywords: | Outpatient care; inpatient care; delay in seeking health care; health care utilization; social health insurance; Philippines |
| JEL: | I12 D12 I19 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:phs:dpaper:201703&r=ias |
| By: | Nobuyoshi Yamori (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Yoshihiro Asai (Meiji University, Japan and California State University, Northridge, USA) |
| Abstract: | We conducted a questionnaire survey regarding insurance and risk management of small and medium-sized enterprises (SMEs) all over Japan in 2014. Based on that survey, this research examined who prepared less against natural disasters before the 2011 Great East Japan Earthquake and how seriously Japanese SMEs with poor risk management were affected by the earthquake. We find that SMEs in a weaker financial condition tended to take fewer measures against earthquakes before the Great East Japan Earthquake. We also find that companies in a weaker financial condition tend to prepare less for earthquake risks even after the Great Earthquake. Furthermore, we find that direct damages from the Great East Japan Earthquake were more serious for SMEs with poor risk management than for those with sound risk management. |
| Keywords: | Small and medium-sized enterprises (SMEs), Earthquake insurance, Risk management, Natural disasters |
| JEL: | G22 G31 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2017-14&r=ias |
| By: | Benjamin Dequiedt; Emmanuel Servonnat |
| Abstract: | In this paper, we investigate how risk and risk aversion influence the fertilisation behavior of farmers. We show analytically that a decreasing variance of yield along with nitrogen inputs encourages risk averse farmers to apply larger quantities of fertilizers compared with risk neutral behavior. Then, we use data concerning three departments in France (Deux-Sèvres, Seine-Maritime and Eure-et-Loir) to determine (i) crop yield response function to N fertilizers and (ii) risk aversion behavior of farmers on the basis of their actual fertilizers applications. We find that risk averse farmers represent 29,7% of farmers while risk seeking ones represent 35,5%. Risk aversion behavior is associated with an additional application of 29 kg/ha compared with risk neutral behavior which represents an average loss of 76 euros/ha. We show that the reduction of abatement linked to risk aversion behavior should appear only when crop yield variance is convex with respect to N fertilizers. Lastly, our results show that an insurance covering yield variability could be foreseen as an interesting tool to mitigate emissions. |
| Keywords: | Risk aversion, Emissions Tax, Mitigation Insurance, Fertilisation, Agriculture |
| JEL: | D81 D92 Q58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cec:wpaper:1606&r=ias |
| By: | Epper, Thomas; Fehr-Duda, Helga |
| Abstract: | Almost all important decisions in people’s lives entail risky consequences. Some of these decisions involve events that materialize with a low probability but lead to extreme consequences such as loss of total wealth or accidental death. When facing such rare extreme events, people display considerable risk aversion in some situations whereas in others the opposite is the case. For example, the prospect of airplane and stock market crashes triggers high risk aversion but there is a low willingness to take out hazard or life insurance. We address this puzzle by arguing that the timing of the consequences and of uncertainty resolution are crucial for understanding these phenomena. We show that future uncertainty conjointly with people’s proneness to probability distortions generates a unifying framework for explaining the coexistence of over- and underweighting of rare extreme events. |
| Keywords: | Tail risk, insurance, risk preference, time preferences, extreme events, probability weighting |
| JEL: | D01 D81 D91 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2017:05&r=ias |