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on Insurance Economics |
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Issue of 2018‒05‒14
eight papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Andersson, Josefine (IFAU - Institute for Evaluation of Labour Market and Education Policy) |
| Abstract: | Evidence from around the world suggests that individuals who are awarded disability benefits in some cases still have residual working capacity, while disability insurance systems typically involve strong disincentives for benefit recipients to work. Some countries have introduced policies to incentivize disability insurance recipients to use their residual working capacities on the labor market. One such policy is the continuous deduction program in Sweden, introduced in 2009. In this study, I investigate whether the financial incentives provided by this program induce disability insurance recipients to increase their labor supply or education level. Retroactively determined eligibility to the program with respect to time of benefit award provides a setting resembling a natural experiment, which could be used to estimate the effects of the program using a regression discontinuity design. However, a simultaneous regime change of disability insurance eligibility causes covariate differences between treated and controls, which I adjust for using a matching strategy. My results suggest that the financial incentives provided by the program have not had any effect on labor supply or educational attainment. |
| Keywords: | disability Insurance; financial Incentives; continuous deduction; regression discontinuity design; propensity score matching; nearest neighbor matching |
| JEL: | H53 H55 I18 J22 |
| Date: | 2018–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ifauwp:2018_007&r=ias |
| By: | Casaburi, Lorenzo; Willis, Jack |
| Abstract: | The gains from insurance arise from the transfer of income across states. Yet, by requiring that the premium be paid upfront, standard insurance products also transfer income across time. We show that this intertemporal transfer can help explain low insurance demand, especially among the poor, and in a randomized control trial in Kenya we test a crop insurance product which removes it. The product is interlinked with a contract farming scheme: as with other inputs, the buyer of the crop offers the insurance and deducts the premium from farmer revenues at harvest time. The take-up rate for pay-at-harvest insurance is 72%, compared to 5% for the standard pay-upfront contract, and the difference is largest among poorer farmers. Additional experiments and outcomes provide evidence on the role of liquidity constraints, present bias, and counterparty risk, and find that enabling farmers to commit to pay the premium just one month later increases demand by 21 percentage points. |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12896&r=ias |
| By: | Douadia Bougherara; Laurent Piet |
| Abstract: | A growing number of studies in finance and economics seek to explain insurance choices using the assumptions advanced by behavioral economics. One recent example in agricultural economics is the use of cumulative prospect theory (CPT) to explain farmer choices regarding crop insurance coverage levels (Babcock, 2015). We build upon this framework by deriving willingness to pay (WTP) for insurance programs under alternative assumptions, thus extending the model to incorporate farmer decisions regarding whether or not to purchase insurance. Our contribution is twofold. First, we study the sensitivity of farmer WTP for crop insurance to the inclusion of CPT parameters. We find that loss aversion and probability distortion increase WTP for insurance while risk aversion decreases it. Probability distortion in losses plays a particularly important role. Second, we study the impact of yield distribution skewness on farmer WTP assuming CPT preferences. We find that WTP decreases when the distribution of yields moves from negatively- to positively-skewed and that the combined effect of probability weighting in losses and skewness has a large negative impact on farmer WTP for crop insurance. |
| Keywords: | crop insurance, cumulative prospect theory, premium subsidy; skewness |
| JEL: | D81 Q10 Q12 Q18 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:lam:wpceem:18-08&r=ias |
| By: | Nathaniel Hendren |
| Abstract: | Revealed-preference measures of willingness to pay (WTP) capture the value of insurance only against the risk that remains when choosing insurance. This paper provides a method to translate observed market WTP and cost curves into an ex-ante value of insurance that can analyze the impact of insurance market policies on ex-ante expected utility. The key additional statistic required is the difference in marginal utilities between insured and uninsured, which generally requires an estimate of risk aversion. Applying the approach to previous literature, I estimate higher values of subsidies and mandates relative to methods based market surplus or "deadweight loss". |
| JEL: | H0 I11 I3 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24470&r=ias |
| By: | Chunzan Wu; Dirk Krueger |
| Abstract: | We show that a calibrated life-cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri and Saporta-Eksten (2016) in U.S. data. With additively separable preferences, 43% of male and 23% of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 34% and 20%. With non-separable preferences the model predicts more consumption insurance, with pass-through rates of 29% and 16%. Most of the consumption insurance against permanent male wage shocks is provided through the labor supply response of the female earner. |
| JEL: | D31 E21 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24472&r=ias |
| By: | Malhotra, Shefali (National Institute of Public Finance and Policy); Patnaik, Ila (National Institute of Public Finance and Policy); Roy, Shubho (National Institute of Public Finance and Policy); Shah, Ajay (National Institute of Public Finance and Policy) |
| Abstract: | In recent years there has been an increased role for health insurance in Indian health care, through government funded health insurance programs and privately purchased health insurance. Our analysis of the claims ratio and the complaints rate in the health insurance industry, suggests that there are important difficulties with the working of health insurance. The lack of fair play in this industry is derived from deficiencies in regulations, weak enforcement of regulations and faulty institutional design of consumer redress. The solutions lie in laws and regulatory processes for consumer protection. The thought process of health policy and financial policy converges in the strategy for change. |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:18/228&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: | J1 |
| Date: | 2017–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:87779&r=ias |
| By: | Hassen Raîs (ESSCA - Ecole Supérieure des Sciences Commerciales d'Angers - ESSCA) |
| Abstract: | The scientific literature has extensively studied and analyzed the determinants of risks management and focused mainly on the hedging by derivatives. This research focuses on another kind of hedging, namely business insurances and aims to validated and measure the determinants of the implementation and use of these insurances in the non-financial firms. Based on the results of an empirical survey on practices of risk management in non-financial firms, Tobit models are developed to explain the intensity of the use of business insurances by the theoretical determinants developed by risk management theory. Two types of business insurance are analyzed: the Property and Casualty (P&C) Insurance and the Operating Loss (OL) Insurance. These models measure the relationship between level of hedging and different financial characteristics of the firm. They show that the insurance policies are determined by Investment decisions and financing options for growth, by the convexity of the tax function to pay, and diversification and regulation of the activity sector, and the original result are the convex relationship between the size and the hedging intensity. |
| Date: | 2016–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01766113&r=ias |