nep-ias New Economics Papers
on Insurance Economics
Issue of 2018‒09‒10
thirty papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. The Value of Health Insurance: A Household Job Search Approach By Conti, Gabriella; Ginja, Rita; Narita, Renata
  2. How Should Unemployment Insurance vary over the Business Cycle? By Serdar Birinci; Kurt Gerrard See
  3. Weather Index Insurance, Agricultural Input Use, and Crop Productivity in Kenya By Sibiko, Kenneth W.; Qaim, Matin
  4. On the optimal investment-consumption and life insurance selection problem with an external stochastic factor By Rodwell Kufakunesu; Calisto Guambe
  5. Examining Substance Use Disorder Treatment Demand and Provider Capacity in a Changing Health Care System: Final Report By Ellen Bouchery
  6. Experimental evidence on bank runs under partial deposit insurance By Peia, Oan; Vranceanu, Radu
  7. Examining Substance Use Disorder Treatment Demand and Provider Capacity in a Changing Health Care System (In Focus Brief) By Ellen Bouchery
  8. Financial Incentives and Earnings of Disability Insurance Recipients: Evidence from a Notch Design By Ruh, Philippe; Staubli, Stefan
  9. Elements of an index-based margin insurance – an application to wheat production in Austria By Heinschink, Karin; Sinabell, Franz; Url, Thomas
  10. Multidimensional Private Information, Market Structure and Insurance Markets By Hanming Fang; Zenan Wu
  11. Optimal investment-consumption and life insurance with capital constraints By Rodwell Kufakunesu; Calisto Guambe
  12. Implementing a Whole Health Model in a Community Mental Health Center: Impact on Service Utilization and Expenditures By Ellen E. Bouchery; Allison Wishon Siegwarth; Brenda Natzke; Jennifer Lyons; Rachel Miller; Henry T. Ireys; Jonathan D. Brown; Elena Argomaniz; Rochelle Doan
  13. Optimal Unemployment Insurance and Redistribution By Boadway, Robin; Cuff, Katherine
  14. What ails fishery insurance in China? - Evaluating fishermen's willingness to pay in central coastal areas By Hairong Mu; Hui Zheng; Chunyang Wang
  15. Euro Area Policies; Financial Sector Assessment Program-Technical Note-Insurance, Investment Firm, and Macroprudential Oversight By International Monetary Fund
  16. A Self-Attention Network for Hierarchical Data Structures with an Application to Claims Management By Leander L\"ow; Martin Spindler; Eike Brechmann
  17. Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets By Ho, Katherine; Lee, Robin S.
  18. Seeking Safety By Toni Ahnert; Enrico Perotti
  19. Private Provision of Publicly Funded Health Care: The Economics of Ownership By Chalkley, M.; Sussex, J.
  20. Welfare Effects of Fiscal Procyclicality: Public Insurance with Heterogeneous Agents By Alvaro Aguirre
  22. Seasonal Scarcity and Sharing Norms By Bartos, Vojtech
  23. Do Suspensions Affect Student Outcomes? By Johanna Lacoe; Matthew P. Steinberg
  24. Put, call or strangle? About the challenges in designing weather index insurances to hedge performance risk in agriculture By Doms, Juliane
  25. Revalorisation 2016 des contrats d’assurance-vie – engagements à dominante retraite By Gaëlle Capitaine; Laure Frey
  26. Over-the-counter market liquidity and securities lending By Nathan Foley-Fisher; Stefan Gissler; Stephane Verani
  27. Small Farmers' Preferences for Weather Index Insurance: Insights from Kenya By Sibiko, Kenneth W.; Veettil, Prakashan C.; Qaim, Matin
  28. Can Rationing Increase Welfare? Theory and An Application to India's Ration Shop System By Gadenne, Lucie
  29. Private Money Creation, Liquidity Crises, and Government Intervention By Benigno, Pierpaolo; Robatto, Roberto
  30. One billion Euro program for early childcare services in Italy By Isabella Giorgetti; Matteo Picchio

  1. By: Conti, Gabriella (University College London); Ginja, Rita (University of Bergen); Narita, Renata (University of Sao Paulo)
    Abstract: Do households value access to free health insurance when making labor supply decisions? We answer this question using the introduction of universal health insurance in Mexico, the Seguro Popular (SP), in 2002. The SP targeted individuals not covered by Social Security and broke the link between access to health care and job contract. We start by using the rollout of SP across municipalities in a differences-indifferences approach, and find an increase in informality of 4% among low-educated families with children. We then develop and estimate a household search model that incorporates the pre-reform valuation of formal sector amenities relative to the alternatives (informal sector and non-employment) and the value of SP. The estimated value of the health insurance coverage provided by SP is below the government's cost of the program, and the corresponding utility gain is, at most, 0.56 per each peso spent.
    Keywords: search, household behavior, health insurance, informality, unemployment
    JEL: J64 D10 I13
    Date: 2018–07
  2. By: Serdar Birinci (University of Minnesota); Kurt Gerrard See (University of Minnesota)
    Abstract: We study optimal unemployment insurance (UI) over the business cycle using a tractable heterogeneous agent job search model that features labor productivity driven business cycles and incomplete asset markets, and find that UI policy should be countercyclical. In this framework, besides providing consumption insurance upon job loss, generous UI payments allow individuals to maintain similar consumption levels even during recessions, when they would otherwise have had to accumulate savings by reducing consumption. Moreover, the presence of borrowing constraints disciplines the unemployed’s job search behavior, thus offsetting some of the moral hazard costs introduced by the generous UI payments in downturns. Even when the opportunity cost of employment is set to be high, these channels remain active to preserve the countercyclicality of the optimal UI policy.
    Date: 2018
  3. By: Sibiko, Kenneth W.; Qaim, Matin
    Abstract: Weather risk is a serious issue in the African small farm sector, which will further aggravate due to climate change. Farmers typically react by using low amounts of agricultural inputs. Low input use can help to minimize financial loss in bad years, but is also associated with low average yield and income. Increasing small farm productivity and income is an important prerequisite for rural poverty reduction and food security. Crop insurance could incentivize farmers to increase their input use, but indemnity-based crop insurance programs are plagued by market failures. This paper contributes to the emerging literature on the role of weather index insurance (WII). While a few studies have used experimental approaches to analyze WII impacts, research with observational data is scant. We use data from a survey of farmers in Kenya, where a commercial WII scheme has been operating for several years. Regression models with instrumental variables are used to analyze WII uptake and effects on input use and crop productivity. Results show that WII uptake contributes to higher use of chemical fertilizer and improved seeds, and thus also to higher yields. We conclude that upscaling WII programs may help to spur agricultural development in the small farm sector.
    Keywords: Community/Rural/Urban Development, Farm Management, Risk and Uncertainty
    Date: 2017–04–01
  4. By: Rodwell Kufakunesu; Calisto Guambe
    Abstract: In this paper, we study a stochastic optimal control problem with stochastic volatility. We prove the sufficient and necessary maximum principle for the proposed problem. Then we apply the results to solve an investment, consumption and life insurance problem with stochastic volatility, that is, we consider a wage earner investing in one risk-free asset and one risky asset described by a jump-diffusion process and has to decide concerning consumption and life insurance purchase. We assume that the life insurance for the wage earner is bought from a market composed of $M>1$ life insurance companies offering pairwise distinct life insurance contracts. The goal is to maximize the expected utilities derived from the consumption, the legacy in the case of a premature death and the investor's terminal wealth.
    Date: 2018–08
  5. By: Ellen Bouchery
    Abstract: This report presents findings from a study meant to understand how federal policies implemented in the past decade to increase insurance coverage of substance use disorder (SUD) treatment changed demand for treatment and the state of provider capacity in the SUD treatment field.
    Keywords: mental health, substance abuse, Affordable Care Act, ACA, Mental Health Parity and Addiction Equity Act, Medicaid
    JEL: I
  6. By: Peia, Oan (University College Dublin); Vranceanu, Radu (ESSEC Research Center, ESSEC Business School)
    Abstract: This paper presents experimental evidence on depositor behavior under partial deposit insurance schemes. In the experiment, the size of a deposit insurance fund cannot fully cover all deposits and the level of insurance depends on the number of depositors running on the bank. We show that this form of strategic uncertainty about deposit coverage exerts a significant impact on the propensity to withdraw, and results in a large frequency of bank runs. Runs are more likely when depositors have noisy information about the size of the insurance fund and as the maximum coverage increases, in line with a risk-dominant equilibrium selection mechanism. From a policy perspective, our results emphasize the limits of underfunded deposit insurance schemes in preventing systemic banking crises.
    Keywords: Bank runs; Deposit insurance; Risk dominance; Global games
    JEL: C91 D83 G02 G21
    Date: 2017–04–11
  7. By: Ellen Bouchery
    Abstract: This issue brief presents findings from a study meant to understand how federal policies implemented in the past decade to increase insurance coverage of substance use disorder (SUD) treatment changed demand for treatment and the state of provider capacity in the SUD treatment field.
    Keywords: mental health, substance abuse, Affordable Care Act , ACA, Mental Health Parity and Addiction Equity Act, Medicaid
    JEL: I
  8. By: Ruh, Philippe (University of Zurich); Staubli, Stefan (University of Calgary)
    Abstract: Most countries reduce Disability Insurance (DI) benefits for beneficiaries earning above a specified threshold. Such an earnings threshold generates a discontinuous increase in tax liability – a notch – and creates an incentive to keep earnings below the threshold. Exploiting such a notch in Austria, we provide transparent and credible identification of the effect of financial incentives on DI beneficiaries' earnings. Using rich administrative data, we document large and sharp bunching at the earnings threshold. However, the elasticity driving these responses is small. Our estimate suggests that relaxing the earnings threshold reduces fiscal cost only if program entry is very inelastic.
    Keywords: disability insurance, labor supply, benefit notch, bunching
    JEL: H53 H55 J14 J21
    Date: 2018–07
  9. By: Heinschink, Karin; Sinabell, Franz; Url, Thomas
    Abstract: Farmers may use financial market instruments to hedge price risks. Moreover, various types of insurance products are on the market to protect against production losses. An insurance that covers losses of both input and output prices was recently introduced in the US. We develop this concept further by proposing a prototype of an index-based margin insurance which accounts for both production risks and price risks (input and output prices). The prototype is based on standardised gross margin time series for specific activities. It accounts for revenues, variable costs by cost item, various insurance coverage levels, and gross margin. Indemnities are paid if the gross margin falls short of a determined level. We identify steps necessary to accomplish a market-ready insurance product (e.g. data validation, defining the details of the sub-indexes and the premium calculation, evaluating acceptance on the market prior to its launch). Using Austrian data, the innovative approach is exemplified with respect to different farm management practices, more specifically for the case of conventional and organic wheat production. Farmers could benefit from such a margin insurance since production and price risks would be covered in one scheme, thus reducing opportunity costs.
    Keywords: Agricultural and Food Policy, Agricultural Finance, Risk and Uncertainty
    Date: 2017–04–24
  10. By: Hanming Fang (Department of Economics, University of Pennsylvania); Zenan Wu (Department of Economics, Peking University)
    Abstract: A large empirical literature found that the correlation between insurance purchase and ex post realization of risk is often statistically insignificant or negative. This is inconsistent with the predictions from the classic models of insurance a la Akerlof (1970), Pauly (1974) and Rothschild and Stiglitz (1976) where consumers have one-dimensional heterogeneity in their risk types. It is suggested that selection based on multidimensional private information, e.g., risk and risk preference types, may be able to explain the empirical findings. In this paper, we systematically investigate whether selection based on multidimensional private information in risk and risk preferences, can, under different market structures, result in a negative correlation in equilibrium between insurance coverage and ex post realization of risk. We show that if the insurance market is perfectly competitive, selection based on multidimensional private information does not result in negative correlation property in equilibrium, unless there is a sufficiently high loading factor. If the insurance market is monopolistic or imperfectly competitive, however, we show that it is possible to generate negative correlation property in equilibrium when risk and risk preference types are sufficiently negative dependent, a notion we formalize using the concept of copula. We also clarify the connections between some of the important concepts such as adverse/advantageous selection and positive/negative correlation property.
    Keywords: Asymmetric Information; Multidimensional Private Information; Adverse Selection; Advantageous Selection; Positive Correlation Property
    JEL: D82 G22 I11
    Date: 2016–10–18
  11. By: Rodwell Kufakunesu; Calisto Guambe
    Abstract: The aim of this paper is to solve an optimal investment, consumption and life insurance problem when the investor is restricted to capital guarantee. We consider an incomplete market described by a jump-diffusion model with stochastic volatility. Using the martingale approach, we prove the existence of the optimal strategy and the optimal martingale measure and we obtain the explicit solutions for the power utility functions.
    Date: 2018–08
  12. By: Ellen E. Bouchery; Allison Wishon Siegwarth; Brenda Natzke; Jennifer Lyons; Rachel Miller; Henry T. Ireys; Jonathan D. Brown; Elena Argomaniz; Rochelle Doan
    Abstract: This study examined whether implementing a whole health care model in a community mental health center reduced the use of acute care services and total Medicare expenditures.
    Keywords: whole health care model, Medicare, community mental health center, care coordination
    JEL: I J
  13. By: Boadway, Robin; Cuff, Katherine
    Abstract: We characterize optimal income taxation and unemployment insurance in a search-matching framework where both voluntary and involuntary unemployment are endogenous and Nash bargaining determines wages. Individuals differ in utility when voluntarily unemployed (non-participants in the labour market) and decide whether to participate as a job seeker and if so, how much search effort to exert. Unemployment insurance trades of insurance versus moral hazard due to search. We show that it is optimal to have a positive linear wage tax without any redistributive concerns even if search is effcient so the Hosios condition is satisfied. We also allow for different productivity types so there is a redistributive role for the income tax and show that a proportional wage tax internalizes the macro effects arising from endogenous wages. Lump-sum income taxes and transfers can then redistribute between individuals of differing skills and employment states. Our analysis embeds optimal unemployment insurance into an extensive-margin optimal redistribution framework where transfers to the involuntary and voluntary unemployed can differ, and nests several standard models in the literature.
    Keywords: Demand and Price Analysis, Financial Economics
    Date: 2016–12
  14. By: Hairong Mu (Harper Adams University); Hui Zheng (Ocean University of China); Chunyang Wang (Macau University of Science and Technology)
    Abstract: Despite the remarkable development in its fishery sector, the penetration rate of fishery insurance in China is considerably low. This paper examines the key factors that contribute to the poor performance of fishery insurance in the country and investigates fishermen?s willingness to pay (WTP) for the insurance program, based on a survey of 1,280 fishermen in three coastal cities in China. The results indicate fishermen?s decision on adoption of an insurance scheme depends on various factors, among which the magnitude of loss, insurance awareness and education level all have positive impact, but annual income and years of fishing experience are more likely to have negative effects. In addition, the mean WTP for fishery insurance is estimated to be CNY 579 per family, which is equivalent to 1.5% of fishermen's mean annual income. These results provide several policy implications for not only the government but also researchers and insurance companies.
    Keywords: China, fishery insurance, willingness to pay, double-bounded dichotomous choice contingent valuation method, field survey
    JEL: Q22 H42
    Date: 2018–07
  15. By: International Monetary Fund
    Abstract: While national authorities are still largely responsible for supervising the nonbank sector and applying the macroprudential framework, European Union (EU)-level organizations’ supervisory role is growing. Further convergence and strengthening of supervision of insurers and investment firms is consistent with the goals of an EU single market and financial stability. The macroprudential framework functions well but could be simplified and expanded to cover aspects of the nonbank sector.
    Date: 2018–07–19
  16. By: Leander L\"ow; Martin Spindler; Eike Brechmann
    Abstract: Insurance companies must manage millions of claims per year. While most of these claims are non-fraudulent, fraud detection is core for insurance companies. The ultimate goal is a predictive model to single out the fraudulent claims and pay out the non-fraudulent ones immediately. Modern machine learning methods are well suited for this kind of problem. Health care claims often have a data structure that is hierarchical and of variable length. We propose one model based on piecewise feed forward neural networks (deep learning) and another model based on self-attention neural networks for the task of claim management. We show that the proposed methods outperform bag-of-words based models, hand designed features, and models based on convolutional neural networks, on a data set of two million health care claims. The proposed self-attention method performs the best.
    Date: 2018–08
  17. By: Ho, Katherine; Lee, Robin S.
    Abstract: We evaluate the consequences of narrow hospital networks in commercial health care markets. We develop a bargaining solution, Nash-in-Nash with Threat of Replacement, that captures insurers' incentives to exclude, and combine it with California data and estimates from Ho and Lee (2017) to simulate equilibrium outcomes under social, consumer, and insurer-optimal networks. Private incentives to exclude generally exceed social incentives, as the insurer bene fits from substantially lower negotiated hospital rates. Regulation prohibiting exclusion increases prices and premiums and lowers consumer welfare without significantly affecting social surplus. However, regulation may prevent harm to consumers living close to excluded hospitals.
    Date: 2018–07
  18. By: Toni Ahnert; Enrico Perotti
    Abstract: The scale of safe assets suggests a structural demand for a safe wealth share beyond transaction and liquidity roles. We study how investors achieve a reference wealth level by combining self-insurance and contingent liquidation of investment. Intermediaries improve upon autarky, insuring investors with poor self-insurance and limiting liquidation. However, delegation creates a conflict in states with residual risk. Demandable debt ensures safety-seeking investors can withdraw to implement a safe outcome, so private safety provision is fragile. Public debt crowds out private credit supply and investment, while deposit insurance crowds them in by reducing liquidation in residual risk states.
    Keywords: Financial Institutions
    JEL: G2
    Date: 2018
  19. By: Chalkley, M.; Sussex, J.
    Abstract: There are strongly stated concerns regarding the increasing use of non-publicly owned, especially for-profit, firms to provide services - concerns that the NHS is being undermined, that future services will be at risk or even that health care that is free at the point of delivery – a key tenet of the NHS – is about to be abandoned. There are, however, also staunch defenders of the role of the private sector in health care who argue that private providers increase patient choice, reduce waiting times and drive innovation and efficiency improvements. Depending on the viewpoint, private ownership is either a disaster or a salvation for the NHS. This OHE Briefing outlines the NHS ownership debate through the lens of economics. The aim of the Briefing is to improve understanding of how economics can or cannot help to resolve the question of whether the private ownership of health care provision is good or bad. The economics literature that informs this overview includes - the theory of the organisation of production; theories of behaviour and motivation and the role of incentives and payments in influencing decisions.
    Keywords: Incentivising quality
    JEL: I1
    Date: 2018–09–01
  20. By: Alvaro Aguirre (Central Bank of Chile)
    Abstract: This paper pursues a welfare analysis of fiscal policy, specifically public spending, in an economy with heterogenous agents and incomplete markets. The main quantitative exercise consists in measuring the gains of switching from the (procyclical) spending path of the typical developing country to an acyclical or countercyclical path. The model emphasizes the role of transfer payments from the government to households in alleviating the costs of idiosyncratic shocks. Since these correlate with aggregate shocks, the way fiscal policy is conducted along the business cycle has important welfare effects. I find that the costs of procyclicality are relatively large and very heterogeneous. While wealth-rich agents don’t suffer from procyclicality, poor agents, being either unemployed or unskilled, lose the most. In terms of life-time consumption equivalents these agents may lose as much as 2% from fiscal procyclicality, considering only the fraction of spending that is allocated as transfer payments
    Date: 2018
  21. By: Sinabell, Franz; Url, Thomas; Heinschink, Karin
    Abstract: To stabilise agricultural markets is one of the central objectives of the Common Agricultural Policies (CAP). After two decades of agricultural policy reforms markets are now only minimally influenced by direct policy interventions. However, prices of many farm commodities have become more volatile. A consequence is that farm incomes have become more volatile, as well. Direct payments are an effective instrument to stabilise incomes by offering a certain minimum level of liquidity. However, such premiums are low for many farmers and therefore a set of income stabilisation instruments was introduced during the Health Check Reform on an optional basis for Member States and certain groups of producers. In order to overcome some of the shortcomings of such approaches, we propose a margin insurance. We present such an insurance programme for EU agriculture and exemplify it using Austrian wheat and hog production as case studies. By referring to existing income insurance systems we identify necessary conditions for such a scheme to work. In order to address adverse selection, a micro simulation approach is proposed that makes granular premium discrimination feasible. Such an approach seems to be better suited for the heterogeneous structural conditions in the EU than a similar scheme for milk producers in the US that is based on a composite index.
    Keywords: Agricultural and Food Policy, Risk and Uncertainty
    Date: 2017–08–15
  22. By: Bartos, Vojtech (University of Munich)
    Abstract: How does scarcity affect individual willingness to share and willingness to enforce sharing from others? Sharing in poor communities gains importance as an insurance mechanism during adverse shocks, yet shocks make it costlier to share. I conducted repeated economic experiments in both a lean and a relatively plentiful post-harvest season with the same group of Afghan subsistence farmers experiencing annual seasonal scarcities. I separate altruistic motives from enforcement effects using dictator and third party punishment games. While altruistic sharing remains temporally stable, the enforcement of sharing weakens substantially in times of scarcity. Temporal norms fluctuations seem to drive the results.
    Keywords: afghanistan; scarcity; seasonality; sharing; social norms;
    JEL: C93 D63 I32 Z13
    Date: 2018–09–06
  23. By: Johanna Lacoe; Matthew P. Steinberg
    Abstract: Discipline reformers claim that suspensions negatively affect suspended students, while others suggest reforms have unintended consequences for peers.
    Keywords: discipline policy reform, out-of-school suspensions, student absences, student achievement
    JEL: I
  24. By: Doms, Juliane
    Abstract: Due to an expected increase of extreme weather events caused by climate change, weather index insurances (WII), which can be used to hedge weather-related income fluctuations, are shifting into the spotlight. Most previous studies focus on the index design as it is an important part of a weather index insurance. Nevertheless, also of main importance is the general contract structure. This holds especially true for farms in regions, which are not characterized by extreme climatic conditions. In the present study, it is investigated whether precipitation and soil moisture index based put- and call-options as well as strangles reduce the volatility of total gross margins (hedging efficiency) of 20 German farms in regions with moderate natural conditions. In particular, the hedging efficiency of standardized and customized WII are analyzed. It could be found that customized contracts are better suitable to reduce performance risk than standardized contracts. Further, although the hedging efficiency varies considerably from farm to farm and depends highly on the contract type, the analyzed customized call-options and strangles clearly outperform the customized put-options.
    Keywords: Agribusiness, Farm Management, Risk and Uncertainty
    Date: 2017–08–15
  25. By: Gaëlle Capitaine; Laure Frey
    Abstract: Cette analyse vient en complément de l’étude publiée précédemment sur la revalorisation 2016 des contrats à dominante épargne. Elle se concentre sur les engagements liés aux retraites dans le cadre de l’assurance-vie, en regroupant plusieurs catégories de contrats2, représentant 141 milliards d’euros de provisions mathématiques moyennes en 2016. La plus importante de ces catégories, les contrats collectifs en cas de vie, représentait en 2016 61% des encours moyens des contrats d’assurance-vie à dominante retraite.
    Date: 2017
  26. By: Nathan Foley-Fisher (Federal Reserve Board); Stefan Gissler (Federal Reserve Board); Stephane Verani (Federal Reserve Board)
    Abstract: This paper studies how over-the-counter market liquidity is affected by securities lending. We combine micro-data on corporate bond market trades with securities lending transactions, in which U.S. life insurance companies are major counterparties. Applying a difference-in-difference empirical strategy, we show that the shutdown of AIG’s securities lending programs in 2008 caused a statistically and economically significant reduction in the market liquidity of corporate bonds held by AIG. We also show that an important mechanism behind the decrease in liquidity was a shift towards relatively small trades among a greater number of dealers in the interdealer market.
    Date: 2018
  27. By: Sibiko, Kenneth W.; Veettil, Prakashan C.; Qaim, Matin
    Abstract: Smallholder farmers in developing countries are particularly vulnerable to climate shocks but often lack access to insurance. Weather index insurance (WII) is a promising innovation, but uptake has been lower than expected. WII contracts are not yet sufficiently tailored to the needs and preferences of smallholders. We combine survey and choice-experimental data from Kenya to analyze an existing WII program and how changes in contractual design might encourage uptake. Better training, higher levels of transparency, and offering contracts to small groups rather than individual farmers would increase willingness to pay. Basis risk does not seem to be a major constraint.
    Keywords: Community/Rural/Urban Development, Farm Management, Risk and Uncertainty
    Date: 2017–04–01
  28. By: Gadenne, Lucie
    Abstract: Ration shop systems allow households to purchase limited quantities of some commodities at a fixed subsidized price and are in widespread use throughout the developing world. I construct a model of piece-wise increasing commodity taxation to consider whether the use of ration shops can be rationalized by the characteristics of developing countries: limited government capacity to observe household incomes and high commodity price risk. I find that an efficiency-maximizing government will never use ration shops but a welfare-maximizing one might, to redistribute and provide insurance. Welfare gains from introducing ration shops are highest for necessity goods with high price risk. Calibration results for India suggest that ration shops are welfare-improving relative to a universal transfer scheme for three of the four goods sold through the system today. Welfare gains are wiped out however once more than 6% of the funds allocated to ration shops are lost to corruption or administrative costs.
    Keywords: Development; redistribution; Social Insurance; taxation
    JEL: H23 H53 O23
    Date: 2018–07
  29. By: Benigno, Pierpaolo; Robatto, Roberto
    Abstract: We study the joint supply of public and private liquidity when financial intermediaries issue both riskless and risky debt and the economy is vulnerable to liquidity crises. Government interventions in the form of asset purchases and deposit insurance are equivalent (in the sense that they sustain the same equilibrium allocations), increase welfare, and, if fiscal capacity is sufficiently large, eliminate liquidity crises. In contrast, restricting intermediaries to invest in low-risk projects always eliminates liquidity crises but reduces welfare. Under some conditions, deposit insurance gives rise to an equilibrium in which intermediaries that issue insured debt (i.e., traditional banks) coexist with others that issue uninsured debt (i.e., shadow banks), despite the two being ex ante identical.
    Date: 2018–07
  30. By: Isabella Giorgetti (Universita' Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali); Matteo Picchio (Universita' Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali)
    Keywords: Early childcare services; public early childhood education; government transfers; difference-in-differences
    JEL: C23 H52 H70 J13 R10
    Date: 2018–08

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