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on Insurance Economics |
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Issue of 2018‒02‒12
thirteen papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Chichun Fang (University of Michigan) |
| Abstract: | Expanded health insurance coverage under the Affordable Care Act (ACA) provides alternative channels to obtain health insurance coverage outside employment, which in theory may affect whether people want to work, how much they work, and the sorting of individuals into jobs. Although health insurance exchanges are available in all states, ACA Medicaid expansion is only available in states that chose to expand Medicaid coverage. The state-level variation in timing of Medicaid expansion provides a quasi-experiment setting that can be used to examine how health insurance coverage affected labor supply. In this paper, I study how Medicaid expansion affects the labor supply and re-employment outcomes of displaced (involuntarily unemployed) workers who are near-elderly, low-income, non-married, childless, and non-disabled. Data from 2011-2016 waves of monthly Current Population Survey (CPS) as well as 2010-2016 waves of Displaced Workers Survey (DWS) are used. Results from a discrete-choice model using the CPS suggest that, some displaced workers in expansion states became less likely to exit unemployment to employment while some other became more likely to exit unemployment to not-in-labor-force immediately following Medicaid expansion. While robustness tests suggest this may partly be attributed to state-level idiosyncrasies, my results reject large and persistent effect of Medicaid expansion on unemployment exits. The DWS does not have enough statistical power to identify the difference in reemployment outcomes between displaced workers in expansion and non-expansion states. |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp370&r=ias |
| By: | Barkowski, Scott; McLaughlin, Joanne Song |
| Abstract: | We study the effects of state and federal dependent health insurance mandates on marriage rates of young adults, ages 19 to 25. Motivated by low rates of coverage among this age group, state governments began mandating health insurers in the 1970s to allow adult children to stay on their parents’ insurance plans. These state level efforts successfully increased insurance coverage rates, but also came with unintended implications for the marriage decisions of young adults. Almost all state mandates explicitly prohibited marriage as a condition of eligibility, thereby directly discouraging marriage. Additionally, by making access to health insurance through parents easier, the mandates made access through spouses’ employers relatively less attractive. To the extent that young adults were altering their marriage plans to gain access through potential spouses, they no longer needed to do so under the mandates, thereby implicitly discouraging marriage. When the dependent coverage mandate of the Affordable Care Act (ACA) was enacted, it effectively ended the state-based marriage restrictions, thereby encouraging marriage among young adults previously eligible for state mandates. On the other hand, for those who were not eligible for state mandates, the ACA represented an attractive new path to obtain coverage, thereby discouraging marriage for these young adults, just as the state mandates had implicitly done previously for others. Thus, the separate efforts at the state and federal level to address low coverage rates for young adults ended up interacting and influencing incentives for marriage in opposite directions. We study these interaction effects on marriage empirically using a new dataset we compiled on state-level dependent coverage mandates. Consistent with theoretical arguments, we find that, before the implementation of the ACA, state mandates lowered marriage rates by about 2 percentage points, but this pattern reversed upon the passage of the ACA. We also find that state mandates increased the probability of out-of-wedlock births among state-mandate-eligible women as compared to ineligible ones, but the ACA reversed this trend as well. Our study provides an important example where fundamental understanding of the effects of the ACA dependent coverage mandate can only be had with full consideration of the pre-existing state laws. |
| Keywords: | Marriage, Dependent Health Insurance Mandates, ACA, Health Insurance |
| JEL: | I13 I18 J11 J12 J13 |
| Date: | 2018–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84014&r=ias |
| By: | Li, Yue |
| Abstract: | This paper develops a heterogeneous agents model to analyze the effects of Social Security survivors insurance. The model features a negative mortality-income gradient, asymmetric information of individual mortality rates, and a warm-glow bequest motive that varies by age and family structure. The model matches lifecycle changes in life insurance coverage, and generates advantageous selection in the insurance market. For male agents, reducing survivors benefits for dependent children generates welfare losses, while reducing survivors benefits for aged spouses produces welfare gains. The opposing welfare results are explained by differences in the timing of benefits and in the funding cost. |
| Keywords: | Social Security, bequest motive, life insurance, asymmetric information |
| JEL: | D1 D82 E21 G22 H55 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84038&r=ias |
| By: | Josef Zweimüller |
| Abstract: | The existing literature assumes that unemployment insurance (UI) affects the labor market through the job finding rate of eligible workers. I argue that this focus is too narrow. I show evidence for UI effects through three other margins: (i) search externalities; (ii) takeup of other welfare state programs; and (iii) job separations. This suggests that the analysis of optimal UI should take a more comprehensive view of how UI affects the labor market. |
| Keywords: | Unemployment insurance, extended benefits, unemployment duration, unemployment inflow, layoffs, disability insurance, optimal benefits |
| JEL: | J65 J63 J64 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:276&r=ias |
| By: | In Do Hwang (Economic Research Institute, The Bank of Korea) |
| Abstract: | This paper investigates how loss-aversion affects individuals' decisions on savings and insurance purchase. Specifically, this paper empirically tests if prospect theory's loss aversion decreases insurance demand and increases savings demand. Prospect theory predicts that boundedly rational consumers may view pure protection insurance, such as term-life insurance, as a risky investment because the insured may lose premiums if a bad event does not occur within the pre-specified term. Hence, those who are fairly sensitive to the potential loss choose not to buy term-life insurance. Instead, they may choose a more safe option to prepare for uncertain future events by increasing precautionary saving. This paper tests such prediction using individual-level data from the Health and Retirement Study (HRS) and finds empirical evidence consistent with the prediction: loss-averse individuals are less likely to own term-life insurance and more likely to own whole-life insurance, which serves as a partial savings instrument. These individuals also hold a higher level of wealth than others, suggesting that they tend to save more (presumably for precautionary motives), all other things being equal. |
| Keywords: | Loss aversion, Term life insurance, Whole life insurance, Precautionary saving, Prospect theory |
| JEL: | D03 D14 G22 |
| Date: | 2017–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:bok:wpaper:1708&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; unemployment insurance; mandate; subsidy |
| JEL: | H40 J65 |
| Date: | 2017–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86596&r=ias |
| By: | Le, Nga T.Q. (UNU-MERIT, Maastricht University); Groot, Wim (TIER and CAPHRI School for Public Health and Primary Care, Maastricht University,); Tomini, Sonila (UNU-MERIT, Maastricht University); Tomini, Florian (TIER, Maastricht University, and Amsterdam School of Economics, University of Amsterdam,) |
| Abstract: | The expansion of health insurance in emerging countries raises concerns about unintended negative effects of health insurance on labour supply. This paper examines the labour supply effects of the Health Care Fund for the Poor (HCFP) in Vietnam in terms of the monthly number of work hours and the probability of employment. Employing Difference-in- Differences Matching methods on the Vietnam Household Living Standard Survey 2002-2006, we show that HCFP, which aims to provide poor people and disadvantaged minority groups with free health insurance, has a positive labour supply effect in the short run. However, in the longer run, the net effect becomes negative due to the income effect. This is manifested in both average work hours per month and the probability of employment albeit the effect on the latter is statistically insignificant. Interestingly, the finding of the income effect is mainly driven by the non-poor recipients living in rural areas. This raises the question of targeting strategy of the programme to avoid unintended labour supply distortion. |
| Keywords: | health insurance, human resources, labour supply, health care funding, welfare, Vietnam |
| JEL: | I13 J22 O15 |
| Date: | 2017–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2017050&r=ias |
| By: | Pezone, Vincenzo |
| Abstract: | This paper argues that workers’ unemployment risk may induce firms to adopt conservative payout policies. I show that firms increase their dividend payout following sharp increases in unemployment insurance generosity, that reduce workers’ personal losses due to layoffs. Firms increase payout by about 6% following positive changes in protection for unemployed workers that are plausibly unrelated to macroeconomic conditions. This effect is driven by firms with poor growth prospects, high labor intensity, and in more volatile industries, suggesting that public insurance crowds out private insurance by firms. Thus, labor market considerations play an important role in shaping firms’ payout decisions. |
| Keywords: | Unemployment Insurance, Dividend Payout, Implicit Contract |
| JEL: | G35 J65 |
| Date: | 2017–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:83918&r=ias |
| By: | Ralph Rudd; Thomas A. McWalter; Joerg Kienitz; Eckhard Platen |
| Abstract: | This paper provides a methodology for fast and accurate pricing of the long-dated contracts that arise as the building blocks of insurance and pension fund agreements. It applies the recursive marginal quantization (RMQ) and joint recursive marginal quantization (JRMQ) algorithms outside the framework of traditional risk-neutral methods by pricing options under the real-world probability measure, using the benchmark approach. The benchmark approach is reviewed, and the real-world pricing theorem is presented and applied to various long-dated claims to obtain less expensive prices than suggested by traditional risk-neutral valuation. The growth-optimal portfolio (GOP), the central object of the benchmark approach, is modelled using the time-dependent constant elasticity of variance model (TCEV). Analytic European option prices are derived and the RMQ algorithm is used to efficiently and accurately price Bermudan options on the GOP. The TCEV model is then combined with a $3/2$ stochastic short-rate model and RMQ is used to price zero-coupon bonds and zero-coupon bond options, highlighting the departure from risk-neutral pricing. |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1801.07044&r=ias |
| By: | Anne Corcos (CURAPP-ESS UMR 7319; CNRS; Université de Picardie); François Pannequin (CREST; ENS Paris-Saclay; Université Paris-Saclay); Claude Montmarquette, (CIRANO; Université de Montréal) |
| Abstract: | This paper compares the Holt and Laury’s risk attitude elicitation with a risk attitude classification associated with insurance behavior. The standard Holt and Laury’s procedure (2002) is implemented in the loss domain, while the second tool is based on contextualized experimental hedging choices for insurance and loss reduction (secondary prevention). Our findings highlight the high consistency between the two procedures for more than two-thirds of the subjects, both measures leading to the same risk-attitude assignment. Interestingly, cases where the two measures do not coincide concern the only subjects whose Holt and Laury’s risk aversion coefficient is borderline. For these participants, using both measures allows for a more accurate assessment. Finally, the HL-irrational behavior of participants uncovers specific risk-averse behavior signature, while contextualized-irrational behavior reveals a risk-loving behavior. |
| Keywords: | risk-attitude classification, insurance demand, self-insurance demand, loss reduction, secondary prevention, multiple price list method, experimental study |
| JEL: | C91 D81 |
| Date: | 2017–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2017-79&r=ias |
| By: | Boudreaux, Michel; Lipton, Brandy |
| Abstract: | Previous work suggests that Medicaid eligibility expansions may lead to declines in labor market activity. This paper explores the related, but novel question of whether variation in Medicaid benefit generosity alters employment outcomes. We consider adult vision benefits as a case study. Our findings suggest that vision benefits have a net positive effect on intensive margin measures including hours worked and occupational skill requirements, but no significant effect on the likelihood of being employed. These results indicate that Medicaid’s effect on labor market activity is sensitive to the set of covered services. |
| Keywords: | Health insurance, Medicaid, Employment, Vision care |
| JEL: | H75 I13 I18 J22 |
| Date: | 2018–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:83916&r=ias |
| By: | Victoria Perez; Bob Schmitz; Audra T. Wenzlow; Kathy Shepperson; David Baugh; Susan Radke |
| Keywords: | Medicaid eXtract chart book , Health |
| JEL: | I |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:9e8e1159856a419b998f95125655c912&r=ias |
| By: | Feng, Xiaoguang |
| Abstract: | This dissertation consists of three essays discussing topics on agricultural insurance and farm real estate investment. The first essay focuses on diversifying systemic risk in crop insurance portfolios. Portfolio risk in crop insurance due to the systemic nature of crop yield losses has inhibited the development of private crop insurance markets. Government subsidy or reinsurance has therefore been used to support crop insurance programs. We investigate the possibility of converting systemic crop yield risk into “poolable†risk. Specifically, we examine whether it is possible to remove the co-movement as well as tail dependence of crop yield variables by enlarging the risk pool across different crops and countries. Hierarchical Kendall copula models are used to allow for potential non-linear correlations of the high-dimensional risk factors. A Bayesian estimation approach is applied to account for estimation risk in the copula parameters. The results indicate that the systemic risk in crop insurance can be eliminated by combining crop insurance policies across crops and countries.The second essay attempts to provide an explanation for the high return-low risk paradox in farmland investment. We investigate both the nominal and real returns of a farmland portfolio from a forward-looking perspective. Land values and cash rents are slow to adjust and therefore the return from owning land is likely to be time-varying and serially correlated. Time-series and copula modeling techniques are used to construct the optimal portfolio and to evaluate the risk-return profile. The results indicate that it takes a number of years for the expected return to reach the long-term equilibrium. From a forward-looking perspective, the attractive average return level observed historically can only be attained over a long investment period. The risk involved in the long investment period, however, is also considerably higher than the historical sample volatility. This is due to autocorrelation in the return series. These findings help explain the “high return and low risk†puzzle observed in historical farmland returns.The third essay examines the predictive power of capital market risk factors for farmland returns. Farmland value slightly increased in 2017 even though farm income was lower. This development suggests the rate of return required by investors for farmland asset has been reduced. A similar phenomenon has been observed in the equity market which also suggests reduced equity risk premium. One possible explanation for the decreasing required rate of return is an increased money supply. Previous research suggests that the money supply affects several macroeconomic risk factors through different transmission channels, which in turn influence investor behaviors and asset returns. This article examines the predictive power of these risk factors for farmland asset returns. Both linear and neural network models are used and the forecast accuracy is compared across different models. The results indicate that farmland return prediction is significantly improved by adding capital market excess return as an explanatory variable. Adding additional risk factors, however, does not improve the prediction with the sample used in this study. |
| Date: | 2017–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:201701010800007133&r=ias |