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on Insurance Economics |
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Issue of 2017‒10‒29
fifteen papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Gabriella Conti; Rita Ginja, Renata Narita |
| Abstract: | A central topic in the global health agenda is universal health coverage (UHC). The primary goal of social health insurance schemes is to protect beneficiaries from the health and financial consequences of adverse health events. While in this sense there is scope for government intervention in providing insurance, the impacts of UHC on labor markets in developing countries are less clear. We study this issue using the case of Mexico, which introduced in 2002 a non-contributory health insurance scheme directed to the half of the country’s population uncovered by Social Security protection (the Seguro Popular, SP). Since before SP uninsured individuals could only access affordable health care through their employer, the introduction of a non-contributory public health insurance scheme could have resulted in large effects on the labor market. In practice, SP is a transfer(tax) to the informal(formal) sector workers and to the nonemployed. On the one hand, if the value placed on SP benefits is high, the introduction of fully subsidized health insurance can lead to negative impacts on employment and/or formality. On the other hand, wages in equilibrium might compensate the increase in benefits in the informal sector, in which case the impact on formality and employment is ambiguous. We start analyzing the effects of SP on labor market outcomes by exploiting its staggered introduction across municipalities using a difference-in-differences strategy on the Mexican Labor Force Survey data. We show that the implementation of SP in a municipality is associated with an increase in informality by 4% for low-education families with children. Then, to study why the policy change had limited impacts on the labor market, we develop and estimate a novel household search model which incorporates the value of SP as well as the pre-reform valuation assigned to the amenities in the formal sector relative to the alternatives (i.e., informal sector and non-employment), in order to understand whether access to free health services is valued by household members when they make their labor market decisions. Our structural model is able to replicate both the stocks of household types by Social Security coverage and the transitions in and out of employment and between formal and informal jobs in the pre-reform period. The results show that the steady-state marginal willingness to pay for the health insurance coverage provided by SP is very low, amounting to only 1.3%-4.2% of the mean wage in the informal sector. Lastly, using the model to simulate counterfactual scenarios of employment and labor formality under different valuations of the new health system implemented in Mexico, we find that the willingness to pay for SP would have had to be significantly greater than it was to have substantial impacts on the economy. |
| Keywords: | Health Insurance; Social Security; Informality |
| JEL: | I13 J33 J42 O17 |
| Date: | 2017–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2017wpecon17&r=ias |
| By: | Aditya Kusuma; Ilan Noy; Bethanna Jackson |
| Abstract: | The potentially adverse effects of droughts on agricultural output are obvious. Indonesian rice farmers have no financial protection from climate risk via catastrophic weather risk transfer tools. Done well, a weather index insurance (WII) program can not only provide resources that enable recovery, but can also facilitate the adoption of prevention and adaptation measures and incentivise risk reduction. Here, we quantify the applicability, viability, and likely cost of introducing a WII for droughts for rice production in Indonesia. To reduce basis risk, we construct district specific indices that are based on the estimation of Panel Geographically Weighted Regressions models. With these spatial tools, and detailed district level data on past agricultural productivity and weather conditions, we present an algorithm that generates an effective and actuarially sound WII, and measure its effectiveness in reducing income volatility for farmers. We use data on annual paddy production in 428 Indonesian districts, reported over the period 1990-2013, and climate data from 1950-2015. We use the monthly Palmer Drought Severity Index and identify district-specific trigger and exit points for the insurance plan. We quantify the impact of this hypothetical insurance product using past production data to calculate an actuarially-robust and welfare-enhancing price for this scheme. |
| Keywords: | index insurance, rice, Indonesia |
| JEL: | Q54 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6530&r=ias |
| By: | Plastina, Alejandro |
| Date: | 2016–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:201603281459161430&r=ias |
| By: | Raül Santaeulàlia-Llopis; Yu Zheng |
| Abstract: | We exploit a novel and unique opportunity to document the transmission of income risks to consumption in a growing economy. Our laboratory is China, an economy that has witnessed enormous and sustained growth and for which we build a long panel of household-level consumption and income. We find that consumption insurance deteriorates along the growth process with a transmission of permanent income shocks to consumption that at least triples from 1989 to 2009. Although preliminary, our calculations suggest that the loss of consumption insurance has implications for the welfare assessment of economic growth. |
| Keywords: | economic growth, income risk, consumption insurance, China |
| JEL: | O11 O12 E21 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:995&r=ias |
| By: | Johnson, Steven D. |
| Date: | 2016–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:201603281417261421&r=ias |
| By: | Camille Landais; Arash Nekoei; Peter Nilsson; David Seim; Johannes Spinnewijn |
| Abstract: | This paper studies whether adverse selection can rationalize a universal mandate for unemployment insurance (UI). Building on a unique feature of the unemployment policy in Sweden, where workers can opt for supplemental UI coverage above a minimum mandate, we provide the first direct evidence for adverse selection in UI and derive its implications for UI design. We find that the unemployment risk is more than twice as high for workers who buy supplemental coverage, even when controlling for a rich set of observables. Exploiting variation in risk and prices to control for moral hazard, we show how this correlation is driven by substantial risk-based selection. Despite the severe adverse selection, we find that mandating the supplemental coverage is dominated by a design leaving the choice to workers. In this design, a large subsidy for supplemental coverage is optimal and complementary to the use of a minimum mandate. Our findings raise questions about the desirability of the universal mandate of generous UI in other countries, which has not been tested before. |
| Keywords: | adverse selection, unemployment insurance, mandate, subsidy |
| JEL: | H40 J65 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1503&r=ias |
| By: | Landais, Camille; Nekoei, Arash; Nilsson, Peter; Seim, David; Spinnewijn, Johannes |
| Abstract: | This paper studies whether adverse selection can rationalize a universal mandate for unemployment insurance (UI). Building on a unique feature of the unemployment policy in Sweden, where workers can opt for supplemental UI coverage above a minimum mandate, we provide the first direct evidence for adverse selection in UI and derive its implications for UI design. We find that the unemployment risk is more than twice as high for workers who buy supplemental coverage, even when controlling for a rich set of observables. Exploiting variation in risk and prices to control for moral hazard, we show how this correlation is driven by substantial risk-based selection. Despite the severe adverse selection, we find that mandating the supplemental coverage is dominated by a design leaving the choice to workers. In this design, a large subsidy for supplemental coverage is optimal and complementary to the use of a minimum mandate. Our findings raise questions about the desirability of the universal mandate of generous UI in other countries, which has not been tested before. |
| Keywords: | Adverse Selection; Mandate; Subsidy; Unemployment insurance |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12364&r=ias |
| By: | Minchung Hsu (National Graduate Institute for Policy Studies); Gary Hansen (UCLA); Elena Capatina (UNSW Business School) |
| Abstract: | We build a life-cycle model of household consumption and saving decisions, where long term care (LTC) expenditures are endogenous. We use an LTC-state dependent utility function where regular consumption and LTC are valued differently. The model includes both married and single households, thus capturing important family dynamics that are important for precautionary savings and LTC decisions. Married individuals face the risk of a spouse needing LTC and quickly depleting joint assets. However, those needing LTC can benefit from the presence of a healthy spouse who provides informal care, lowering the costs of LTC given a fixed quality of care. We use the calibrated model to estimate the importance of family dynamics for savings and consumption decisions, and also to quantify the impacts of LTC policy reforms such as the provision of a universal public system that pays for a minimum level of LTC costs. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:854&r=ias |
| By: | Johnson, Steven D. |
| Date: | 2016–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:201603251429221406&r=ias |
| By: | Stefan Gissler; Borghan N. Narajabad |
| Abstract: | The Federal Home Loan Bank (FHLB) system was founded in 1932 to support mortgage lending by thrifts and insurance companies. Over time, the system has grown into a provider of funding for a larger range of financial institutions, including commercial banks and insurance companies. Part 1 of this note provides an overview of the FHLB system. Part 2 highlights some of the recent developments in the FHLB system. And part 3 discusses the implications of these developments for financial stability. |
| Date: | 2017–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2017-10-18-1&r=ias |
| By: | Renate Strobl; Conny Wunsch |
| Abstract: | In this study we experimentally investigate whether solidarity, which is a crucial base for informal insurance arrangements in developing countries, is sensitive to the extent to which in-dividuals can influence their risk exposure. With slum dwellers of Nairobi our design measures subjects’ willingness to share income with a worse-off partner both in a setting where partici-pants could either deliberately choose or were randomly assigned to a safe or a risky project. We find that when risk exposure is a choice, willingness to give is roughly 9 percentage points lower compared to when it is exogenously assigned to subjects. The reduction of solidarity is driven by a change in giving behaviour of persons with the risky project. Compared to their counterparts in the random treatment, voluntary risk takers are seemingly less motivated to share their high payoff with their partner, especially if this person failed after choosing the risky project. This suggests that the willingness to show solidarity is influenced by both the desire for own compensation and attributions of responsibility. Our findings have important implications for policies that interact with existing informal insurance arrangements. |
| Keywords: | solidarity, risk taking, Kenya |
| JEL: | D81 C91 O12 D63 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6578&r=ias |
| By: | Farhi, Emmanuel; Tirole, Jean |
| Abstract: | Traditional banking is built on four pillars: SME lending, access to public liquidity, deposit insurance, and prudential supervision. This vision has been shattered by repeated bailouts of shadow financial institutions. This paper puts "special depositors and borrowers'" at the core of the analysis, provides a rationale for the covariation yielding the quadrilogy, and analyzes how prudential regulation must adjust to the possibility of migration toward less regulated spheres. Ring fencing between regulated and shadow banking and the sharing of liquidity in centralized platforms are motivated by the supervision of syphoning and financial contagion. |
| Keywords: | CCPs.; deposit insurance; lender of last resort; migration; Retail and shadow banks; ring fencing; Supervision |
| JEL: | E44 E58 G21 G28 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12373&r=ias |
| By: | Schiprowski, Amelie (IZA) |
| Abstract: | Caseworkers are the main human resource used to provide social services. This paper asks if, and how much, caseworkers matter for the outcomes of unemployed individuals. Using large-scale administrative data, I exploit exogenous variation in unplanned absences among Swiss UI caseworkers. I find that individuals who lose an early meeting with their caseworker stay on average 10 days longer in unemployment (5% relative to the mean). Results show large heterogeneity in the economic value of caseworkers: the effect of a foregone meeting doubles for caseworkers in the highest productivity tercile, while it is zero for caseworkers in the lowest tercile. Finally, absences induce negative spillover effects on the performance of present colleagues, who have to cover additional workload. |
| Keywords: | unemployment insurance, public human resources, caseworkers |
| JEL: | J64 J65 M50 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11040&r=ias |
| By: | Dupor, William D. (Federal Reserve Bank of St. Louis); Rodrigo , Guerrero (Federal Reserve Bank of St. Louis) |
| Abstract: | Government-financed health care (GFHC) expenditures, through Medicare and Medicaid, have grown from roughly zero to over 7.5 percent of national income over the past 50 years. Recently, some advocates (e.g., the Council of Economic Advisers (2014)) have argued that an expansion of GFHC (in particular Medicaid) has large positive employment effects. Using quarterly data between 1976 and 2016, this paper estimates the impact of GFHC spending on the unemployment rate by using an instrumental variables strategy that exploits exogenous variation in Medicare spending. We find that an exogenous GFHC expansion either increases or has no effect on the unemployment rate. Although the unemployment rate responses using aggregate data are estimated imprecisely, they are considerably sharper when estimated using state-level data. We also show the so-called relative (or local) multiplier approach based on the state-level panel provides similar estimates to those based on aggregate data. Finally, we show how the absence of a negative effect of GFHC expansions on the unemployment rate may be due to the implications these policies have for taxes across states. |
| Keywords: | Government spending; multipliers; government-financed health care |
| JEL: | E62 |
| Date: | 2017–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-027&r=ias |
| By: | Johnson, Steven D. |
| Date: | 2016–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:201603301501591439&r=ias |