nep-ias New Economics Papers
on Insurance Economics
Issue of 2017‒07‒23
seven papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Effects of health insurance on labour supply: A systematic review By Nga Le Thi Quynh; Groot, Wim; Tomini, Sonila M.; Tomini, Florian
  2. Do Government Subsidies to Low-income Individuals Affect Interstate Migration? Evidence from the Massachusetts Health Care Reform By James Alm; Ali Enami
  3. Occupational Hazards and Social Disability Insurance By David Wiczer; Amanda Michaud
  4. Willingness to pay for agricultural risk insurance as a strategy to adapt climate change By Mekonnen, Tigist
  5. Risk Preferences in Small and Large Stakes: Evidence from Insurance Contract Decisions By Benjamin L. Collier; Daniel Schwartz; Howard C. Kunreuther; Erwann O. Michel-Kerjan
  6. Role of socio-economic variables in adoption of crop insurance: A Discriminant Function Approach By Kumari, Mrinali; Singh, K.M.; Sinha, D.K.; Ahmad, Nasim; Mishra, R.R.
  7. Pricing formulae for derivatives in insurance using the Malliavin calculus By Caroline Hillairet; Ying Jiao; Anthony R\'eveillac

  1. By: Nga Le Thi Quynh (UNU-MERIT, and Maastricht University); Groot, Wim (TIER, and CAPHRI School for Public Health and Primary Care, Maastricht University); Tomini, Sonila M. (UNU-MERIT, and Maastricht University); Tomini, Florian (Amsterdam School of Economics, University of Amsterdam,)
    Abstract: This study provides a systematic review of empirical evidence on the labour supply effects of health insurance. The outcomes in the 63 studies reviewed include labour supply in terms of hours worked and the probability of employment, self-employment and the level of economic formalisation. One of the key findings is that the current literature is vastly concentrated on the US. We show that spousal coverage in the US is associated with reduced labour supply of secondary earners. The effect of Medicaid in the US on labour supply of its recipients is ambiguous. However we have initial evidence of labour supply distortion caused by Children's Health Insurance Program, Affordable Care Act and other public health insurance expansions. A tentative result is that dependent young adults in the US who can access health insurance via their parents' employer have lower labour supply through fewer hours worked while keeping the same employment probability. The employment-coverage link is an important determinant of labour supply of people with health problems. The same holds for self-employment decisions. Universal coverage may create either an incentive or a disincentive to work depending on the design of the system. Finally, evidence on the relationship between health insurance and the level of economic formalisation in developing countries is fragmented and limited.
    Keywords: health insurance, labour supply, labour market
    JEL: I13 J22
    Date: 2017–03–23
  2. By: James Alm (Department of Economics, Tulane University); Ali Enami (Department of Economics, Tulane University)
    Abstract: Following the passage of the Patient Protection and Affordable Care Act (ACA) of 2010, many – but not all – states decided to expand their Medicaid program in line with provisions of the new law. Will low-income individuals respond to the incentives of living in a state with better health subsidies by relocating to the state? This paper addresses this question by examining the population growth rate of low-income individuals in Massachusetts following the Massachusetts Health Care Reform (MHCR) of 2006. Like the ACA, the MHCR expanded the Medicaid program, and also provided subsidized health insurance for low-income individuals. Using difference-in-differences and triple-differences models and Internal Revenue Service tax return data, we show that the reform did not have a global effect on the movement of low-income individuals across all cities in Massachusetts. However, we also show that the reform did have a local (or border) effect on the movement into border cities of the state, an effect that is relatively large for cities very close to the border but disappears quickly once the distance to border goes beyond 15 miles.
    Keywords: Massachusetts health care reform, interstate migration, Medicaid expansion, subsidized health insurance, border analysis
    JEL: H24 I13 J11
    Date: 2017–07
  3. By: David Wiczer (FRB St. Louis); Amanda Michaud (Indiana University)
    Abstract: Using retrospective data, we introduce evidence that occupational exposure significantly affects disability risk. Incorporating this into a general equilibrium model, social disability insurance (SDI) affects welfare through (i) the classic, risk-sharing channel and (ii) a new channel of occupational reallocation. Both channels can increase welfare, but at the optimal SDI they are at odds. Welfare gains from additional risk-sharing are reduced by overly incentivizing workers to choose risky occupations. In a calibration, optimal SDI increases welfare by 2.6% relative to actuarially fair insurance, mostly due to risk sharing.
    Date: 2017
  4. By: Mekonnen, Tigist (UNU-MERIT, and Maastricht University)
    Abstract: Agricultural production is subject to high risk associated with environmental and agro-ecological conditions. Farmers continuously make decisions to mitigate the various adversities. This study evaluates farm households’ willingness to pay for agricultural risk insurance intervention introduced in Ethiopia in 2009. A bidding game approach is used to elicit willingness-to-pay. We use a unique data collected on farmers’ willingness to pay for production risk insurance covering 1500 farm households. The result from the first willingness to pay response model shows that on average, farmers are willing to pay a premium of 55 Ethiopian Birr. By increasing the efficiency of our estimation, a double-bounded dichotomous choice model is estimated in the follow-up willingness to pay response question. It indicates that farmers are willing to pay about 67 Ethiopian Birr to insurance coverage. The use of modern agricultural technologies such as high-yielding variety and inorganic fertilizer, low rainfall, large family size, and high rainfall type are potential indicators that determine farmers’ decision to adopt financial insurance. We also found farmer’s demand for insurance increases due to the changing extreme weather events. Therefore, the study provides information to agricultural policy makers and private companies to promote agricultural insurance and set the premium and enrollment unit.
    Keywords: Risk, uncertainty, technologies, insurance, contingent valuation methods, Ethiopia
    JEL: D22 D81 G22
    Date: 2017–06–22
  5. By: Benjamin L. Collier; Daniel Schwartz; Howard C. Kunreuther; Erwann O. Michel-Kerjan
    Abstract: We examine risk preferences using the flood insurance decisions of over 100,000 households. In each contract, households make a small stakes decision, the deductible, and a large stakes one, the coverage limit. Expected utility models predict that households would choose high deductibles and low coverage limits, but households do the opposite. Allowing for probability distortions improves our models. Assessing rank dependent utility models, we find that households follow two tenants of prospect theory: overestimation of small probabilities and diminishing sensitivity to losses. In every tested model, different preferences characterize households' small and large stakes insurance decisions.
    JEL: D12 D81 H42 Q54
    Date: 2017–07
  6. By: Kumari, Mrinali; Singh, K.M.; Sinha, D.K.; Ahmad, Nasim; Mishra, R.R.
    Abstract: This study examined the influence of the respondents’ socio-economic characteristics on their adoption of crop insurance schemes. Discriminant analysis based on the criteria values of standardized canonical coefficient and correlation matrix identified that educational level, farm size, satisfaction level, awareness and access to source of credit were positive discriminators while negative coefficients were obtained for age, income level and number of earning members. Awareness about crop insurance scheme, satisfaction level of farmer respondent with respect to the insurance scheme and access to source of credit were the highest discriminant variables. The study made it amply clear that socio-economic characteristics of farmers exert a significant influence on their adoption of crop insurance schemes. Taking into cognizance the findings of the discriminant analysis it can be inferred that awareness about the schemes and their benefits have to be created among the farmers in order to motivate them to go for insurance of their crops.
    Keywords: Socio-economic, crop insurance, discriminant analysis, adoption
    JEL: O33 Q00 Q1 Q12 Q14 Q38
    Date: 2017–06–14
  7. By: Caroline Hillairet (ENSAE ParisTech); Ying Jiao (SAF); Anthony R\'eveillac (INSA Toulouse, IMT)
    Abstract: In this paper we provide a valuation formula for different classes of actuarial and financial contracts which depend on a general loss process, by using the Malliavin calculus. In analogy with the celebrated Black-Scholes formula, we aim at expressing the expected cash flow in terms of a building block. The former is related to the loss process which is a cumulated sum indexed by a doubly stochastic Poisson process of claims allowed to be dependent on the intensity and the jump times of the counting process. For example, in the context of Stop-Loss contracts the building block is given by the distribution function of the terminal cumulated loss, taken at the Value at Risk when computing the Expected Shortfall risk measure.
    Date: 2017–07

This nep-ias issue is ©2017 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.