nep-ias New Economics Papers
on Insurance Economics
Issue of 2020‒02‒03
eleven papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Medicare and the Geography of Financial Health By Paul Goldsmith-Pinkham; Maxim Pinkovskiy; Jacob Wallace
  2. The Value of Free Health Insurance Schemes in Developing Countries By Conti, Gabriella; Ginja, Rita; Narita, Renata
  3. Grouping of Contracts in Insurance using Neural Networks By Mark Kiermayer; Christian Wei{\ss}
  4. Hours risk and wage risk: Repercussions over the life-cycle By Jessen, Robin; König, Johannes
  5. Entitled to Leave: the impact of Unenployment Insurance Eligibility on Employment Duration and Job Quality By Khoury, Laura; Briole, Simon; Brébion , Clément
  6. Dynastic Precautionary Savings By Corina Boar
  7. Health Shocks and the Evolution of Earnings over the Life-Cycle By Michael Keane; Elena Capatina; Shiko Maruyama
  8. Sick of my parents? Consequences of parental ill health on adult children By Norén, Anna
  9. NDC schemes and heterogeneity in longevity: proposals for redesign By Robert Holzmann; Jennifer Alonso Garcia; Héloïse Labit Hardy; Andrés Villegas
  10. Diversification and its Determinants: A Search for Alternative Income and Agricultural Development in Eastern India By Ahmad, Nasim; Singh, KM; Sinha, DK
  11. Optimal Dividends Paid in a Foreign Currency for a L\'evy Insurance Risk Model By Julia Eisenberg; Zbigniew Palmowski

  1. By: Paul Goldsmith-Pinkham; Maxim Pinkovskiy; Jacob Wallace
    Abstract: We use a five percent sample of Americans’ credit bureau data to study the effects of public health insurance on the geography of consumer financial health. Exploiting the (nearly) universal eligibility for Medicare at age 65, we find a 30 percent reduction in debt collections with limited effects on other financial outcomes. Medicare reduces the geographic variation in collections by two-thirds at age 65, and halves the geographic correlation between collections and demographics like race and education. Areas that experienced larger gains in financial health at age 65 had higher shares of black residents, people with disabilities, and for-profit hospitals.
    Keywords: credit bureau data, public health insurance, geographic variation
    JEL: I13 E50 J15
    Date: 2020–01
  2. By: Conti, Gabriella; Ginja, Rita; Narita, Renata
    Abstract: Brazil began the implementation of SUS (Universal Health Insurance) in 1988. To the extent that SUS broke the link between employment contract and health insurance, it may have changed the incentives for individuals to participate in the labor market and in which sector to work (formal or informal). Our goal is to study the labor market impacts of SUS. We do so by structurally estimating a labor market model that allows us to address three main questions (i) How much of the increase in informality in Brazil is due to the introduction of non-contributory health insurance? (ii) How much do individuals value health insurance? And (iii) What are the welfare impacts of increases in the value of non-contributory health insurance? The model is fitted to Brazilian employment data and used to simulate changes in welfare, employment, informality and wages of different noncontributory health insurance policies.
    Keywords: Innovación social, Políticas públicas, Salud,
    Date: 2019
  3. By: Mark Kiermayer; Christian Wei{\ss}
    Abstract: Despite the high importance of grouping in practice, there exists little research on the respective topic. The present work presents a complete framework for grouping and a novel method to optimize model points. Model points are used to substitute clusters of contracts in an insurance portfolio and thus yield a smaller, computationally less burdensome portfolio. This grouped portfolio is controlled to have similar characteristics as the original portfolio. We provide numerical results for term life insurance and defined contribution plans, which indicate the superiority of our approach compared to K-means clustering, a common baseline algorithm for grouping. Lastly, we show that the presented concept can optimize a fixed number of model points for the entire portfolio simultaneously. This eliminates the need for any pre-clustering of the portfolio, e.g. by K-means clustering, and therefore presents our method as an entirely new and independent methodology.
    Date: 2019–12
  4. By: Jessen, Robin; König, Johannes
    Abstract: We decompose permanent earnings risk into contributions from hours and wage shocks. To distinguish between hours shocks, modeled as innovations to the marginal disutility of work, and labor supply reactions to wage shocks we formulate a life-cycle model of consumption and labor supply. Both permanent wage and hours shocks are important to explain earnings risk, but wage shocks have greater relevance. Progressive taxation strongly attenuates cross-sectional earnings risk, its life-cycle insurance impact is much smaller. At the mean, a positive hours shock of one standard deviation raises life-time income by 10%, while a similar wage shock raises it by 12%.
    Keywords: Earnings Risk,Wage Risk,Labor Supply,Progressive Taxation,Consumption Insurance
    JEL: D31 J22 J31
    Date: 2020
  5. By: Khoury, Laura (Dept. of Economics, Norwegian School of Economics and Business Administration); Briole, Simon (Paris School of Economics and JPAL Europe); Brébion , Clément (CEET-CNAM and Paris School of Economics)
    Abstract: Entitlement conditions are a little explored dimension of unemployment insurance (UI) schemes. In this paper, we provide a comprehensive evaluation of a reform that softened the minimum employment record condition to qualify for UI benefits in France after 2009. Using administrative panel data matching employment and unemployment spells, we first provide clear evidence that the reform induced a separation response at the eligibility threshold. It appears both at the micro level– through a jump in transitions from employment to unemployment – and at the macro level – through the scheduling of shorter contracts, in line with the new eligibility requirements. Exploiting the reform as well as relevant sample restrictions, we then estimate the effects of receiving UI benefits on subsequent labour market outcomes using a regression discontinuity design. Our findings point to a large negative impact of UI benefits receipt on employment probability up to 21 months after meeting the eligibility criterion, which is not counterbalanced by an increase in job quality.
    Keywords: Unemployment; Employment duration; Behavioural response; Entitlement conditions; Job quality
    JEL: H31 J08 J65 J68
    Date: 2020–01–13
  6. By: Corina Boar
    Abstract: This paper provides evidence that parents accumulate savings to insure their children against income risk. I refer to this behavior as dynastic precautionary saving and quantify its extent using matched parent-child pairs from the Panel Study of Income Dynamics and exploiting variation in income risk across age, industries and occupations. I then build a model of altruistically linked overlapping generations, in which parents and children interact strategically, that is quantitatively consistent with the empirical evidence. I argue that strategic interactions are important for generating the observed dynastic precautionary behavior and use the model to show this component of household savings is quantitatively important for wealth accumulation, intergenerational transfers and consumption insurance.
    JEL: E21
    Date: 2020–01
  7. By: Michael Keane (School of Economics, UNSW Business School, UNSW Sydney); Elena Capatina (Research School of Economics, Australian National University); Shiko Maruyama (Economics Discipline Group, UTS Business School, University of Technology Sydney)
    Abstract: We study the contribution of health shocks to earnings inequality and uncertainty in labor market outcomes. We calibrate a life-cycle model with idiosyncratic health, earnings, employment and survival risk, where individuals make labor supply and savings decisions, adding two novel features. First, we model health as a complex multidimensional concept. We differentiate between functional health and latent health risk, and between temporary/persistent and predictable/unpredictable health shocks. Second, we model interactions between health and human capital accumulation. We find that, in an environment with both costly health shocks and means-tested transfers, low-skill workers find it optimal to reduce their labor supply in order to maintain eligibility for transfers that protect them from potentially high health care costs. Thus, means-tested transfers generate a moral hazard effect that causes agents (especially those with low productivity) to invest less in human capital. Provision of public insurance can alleviate this problem and enhance labor supply.
    Keywords: Health, Health Shocks, Human Capital, Income Risk, Precautionary Saving, Earnings Inequality, Health Insurance, Welfare
    JEL: D91 E21 I14 I31
    Date: 2019–12
  8. By: Norén, Anna (Uppsala University)
    Abstract: I study the consequences for labor market outcomes and sick leave of having an elderly parent in need of care. Using Swedish register data I compare the labor market outcome trajectories of adult children before and after their parent suffers a health shock. I find that employment and income of adult children are slightly reduced in the years leading up to the demise of their parent, but that the size of the impact is largest in the year, and the year after, parental demise. I also find that daughter’s sick leave absence increases in the year that the parent dies. No effects on labor market outcomes are found from having a parent suffering stroke. Furthermore, I find no clear gender differences between sons and daugh-ters in the impact of having a parent with increased care demand. Taken together, the results suggest that the opportunity costs of parental care need in the form of adverse labor market impacts are small.
    Keywords: Formal and Informal care; Elderly; Labor supply
    JEL: J14 J22
    Date: 2020–01–24
  9. By: Robert Holzmann; Jennifer Alonso Garcia; Héloïse Labit Hardy; Andrés Villegas
    JEL: H53 H55 J32 G22 J08 J16
    Date: 2020
  10. By: Ahmad, Nasim; Singh, KM; Sinha, DK
    Abstract: The eastern region of India, comprising the states of Bihar, Jharkhand, Assam, Odisha and West Bengal, is one of the most backward regions of the nation. This region occupies about 21.85% of geographical area and supports 34% of the population of the country. Agriculture is the mainstay of economy in the region. About 67% of the cultivators belong to marginal group and over 75% of their earnings are utilized to ensure their food security. Issues related to diversification have been discussed by researchers for a long period and they have been trying to relate diversification to the developmental prospects and various factors responsible for it. Despite this, the eastern region has rich natural resources i.e. fertile land, abundant ground water (145.12 BCM), however, the pace of agricultural development is very slow. In the present study, an attempt has been made to measure diversification using Herfindahl-Hirschman index, known as the most popular method, it was used to measure extent of diversification. The regression model was applied to access the determinants of crop diversification in the region. The study is based on secondary data collected from various published sources from 2001-02 to 2014-15 i.e. for a period of 14 years. The results revealed that in the region, the diversification for the study period was observed very low in almost all the states under study and for the eastern region as a whole. The study pinpointed the fact that despite the rich natural resources, its potential could not be harnessed from the point of view of improving agricultural productivity, poverty alleviation and livelihood improvement. Strengthening of crop diversification depends on market and taking care of production risks through technological support, quality input supply, more insurance coverage and establishment of modern storage-processing centres in the region. Keeping in view the rich natural resources and hidden agricultural development opportunities in the region, government has already taken initiative for Second Green Revolution from the region, however a strong policy push up towards instilling confidence among the farming community is needed in this direction.
    Keywords: Diversification, Herfindahl Index, Second Green Revolution, Eastern India, poverty alleviation
    JEL: O11 O13 O33 Q01 Q1
    Date: 2019–11
  11. By: Julia Eisenberg; Zbigniew Palmowski
    Abstract: This paper considers an optimal dividend distribution problem for an insurance company where the dividends are paid in a foreign currency. In the absence of dividend payments, our risk process follows a spectrally negative L\'evy process. We assume that the exchange rate is described by a an exponentially L\'evy process, possibly containing the same risk sources like the surplus of the insurance company under consideration. The control mechanism chooses the amount of dividend payments. The objective is to maximise the expected dividend payments received until the time of ruin and a penalty payment at the time of ruin, which is an increasing function of the size of the shortfall at ruin. A complete solution is presented to the corresponding stochastic control problem. Via the corresponding Hamilton--Jacobi--Bellman equation we find the necessary and sufficient conditions for optimality of a single dividend barrier strategy. A number of numerical examples illustrate the theoretical analysis.
    Date: 2020–01

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