nep-ias New Economics Papers
on Insurance Economics
Issue of 2020‒11‒02
thirteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Optimal per-loss reinsurance and investment to minimize the probability of drawdown By Xia Han; Zhibin Liang
  2. Did Trump's Trade War Impact the 2018 Election? By Emily Blanchard; Chad P. Bown; Davin Chor
  3. The Life-Cycle Effects of Pension Reforms: A Structural Approach By Claudio Daminato; Mario Padula
  4. The Invisible Collateral By Muduli, Silu; Dash, Shridhar Kumar
  5. Optimal control of investment, premium and deductible for a non-life insurance company By Bent Jesper Christensen; Juan Carlos Parra-Alvarez; Rafael Serrano
  6. The Take-Up of Unemployment Benefit Extensions By B. BOUTCHENIK; R. LARDEUX
  7. Working Less to Take Care of Parents? Labor Market Effects of Family Long-Term Care in Four Latin American Countries By Stampini, Marco; Oliveri, María Laura; Ibarrarán, Pablo; Londoño, Diana; Rhee, Ho June (Sean); James, Gillinda M.
  8. Health of Elderly Parents, Their Children's Labor Supply, and the Role of Migrant Care Workers By Frimmel, Wolfgang; Halla, Martin; Paetzold, Jörg; Schmieder, Julia
  9. Long-Term Effects of Individual Placement and Support Services for Disability Benefits Recipients with Severe Mental Illnesses By De Graaf-Zijl, Marloes; Spijkerman, Marcel; Zwinkels, Wim
  10. Keep Working and Spend Less? Collective Childcare and Parental Earnings in France By P. PORA
  11. Re-examining Supplier-induced Demand in Health Care: Comparisons Among Patients Affiliated and Not Affiliated with Healthcare Professionals in China By Si, Yafei; Zhou, Zhongliang; Su, Min; Hu, Han; Yang, Zesen; Chen, Xi
  12. The Effect of Wealth on Worker Productivity By Jan Eeckhout; Alireza Sepahsalari
  13. Measures of Model Risk in Continuous-time Finance Models By Emese Lazar. Shuyuan Qi; Radu Tunaru

  1. By: Xia Han; Zhibin Liang
    Abstract: In this paper, we study an optimal reinsurance-investment problem in a risk model with two dependent classes of insurance business, where the two claim number processes are correlated through a common shock component. We assume that the insurer can purchase per-loss reinsurance for each line of business and invest its surplus in a financial market consisting of a risk-free asset and a risky asset. Under the criterion of minimizing the probability of drawdown, the closed-form expressions of the optimal reinsurance-investment strategy and the corresponding value function are obtained. We show that the optimal reinsurance strategy is in the form of pure excess-of-loss reinsurance strategy under the expected value principle, and under the variance premium principle, the optimal reinsurance strategy is in the form of pure quota-share reinsurance. Furthermore, we extend our model to the case where the insurance company involves $n$ $(n\geq3)$ dependent classes of insurance business and the optimal results are derived explicitly as well.
    Date: 2020–10
  2. By: Emily Blanchard; Chad P. Bown; Davin Chor
    Abstract: We find that Republican candidates lost support in the 2018 congressional election in counties more exposed to trade retaliation, but saw no commensurate electoral gains from US tariff protection. The electoral losses were driven by retaliatory tariffs on agricultural products, and were only partially mitigated by the US agricultural subsidies announced in summer 2018. Republicans also fared worse in counties that had seen recent gains in health insurance coverage, affirming the importance of health care as an election issue. A counterfactual calculation suggests that the trade war (respectively, health care) can account for five (eight) of Republicans’ lost House seats.
    Keywords: trade war, trade policy, retaliatory tariffs, agricultural subsidies, health insurance coverage, voting
    JEL: F13 F14
    Date: 2020
  3. By: Claudio Daminato (Department of Management, Technology and Economics, ETH Zurich); Mario Padula (Università "Ca' Foscari" Venezia and CSEF)
    Abstract: To assess the life-cycle welfare effects of pension reforms, we provide a dynamic stochastic model of saving, portfolio choice and retirement with a pension system that operates according to the notional defined contribution principle. Relying on the exogenous variation from a sequence of Italian pension reforms, we identify and estimate the model, which is then used to draw implications of alternative pension policies. Our results also shed further light on the mechanisms behind the offset between social security and private wealth and show the importance of labor supply at retirement as an insurance mechanism against shocks to pension wealth.
    Keywords: Pension reforms, Life-Cycle, Savings, Portfolio Choice, Retirement.
    JEL: E21 H31 H55 J26
    Date: 2020–10–23
  4. By: Muduli, Silu; Dash, Shridhar Kumar
    Abstract: A borrower may hesitate to borrow from her close relatives and family members as it costs them in terms of reduction in social insurance in the case of default. This invisible cost reduces credit risk. India’s household indebtedness survey shows some evidence on these borrowing preferences. This perspective on borrowing decisions derived from the community can be used as one of the dimensions in credit risk evaluation and in policy formulation.
    Keywords: Network, Trust, Credit Risk
    JEL: C92 D82 G21
    Date: 2019–12–07
  5. By: Bent Jesper Christensen (Aarhus University, CREATES and the Dale T. Mortensen Center); Juan Carlos Parra-Alvarez (Aarhus University and CREATES); Rafael Serrano (Universidad del Rosario)
    Abstract: A risk-averse insurance company controls its reserve, modelled as a perturbed Cramér-Lundberg process, by choice of both the premium p and the deductible K offered to potential customers. The surplus is allocated to financial investment in a riskless and a basket of risky assets potentially correlating with the insurance risks and thus serving as a partial hedge against these. Assuming customers differ in riskiness, increasing p or K reduces the number of customers n(p,K) and increases the arrival rate of claims per customer ?(p,K) through adverse selection, with a combined negative effect on the aggregate arrival rate n(p,K)?(p,K). We derive the optimal premium rate, deductible, investment strategy, and dividend payout rate (consumption by the owner-manager) maximizing expected discounted life-time utility of intermediate consumption under the assumption of constant absolute risk aversion. Closed-form solutions are provided under specific assumptions on the distributions of size and frequency claims.
    Keywords: Stochastic optimal control, Hamilton-Jacobi-Bellman equation, Jump-diffusion, Adverse selection, Premium control, Deductible control, Optimal investment strategy.
    JEL: G11 G22 C60 D82
    Date: 2020–10–12
  6. By: B. BOUTCHENIK (Insee); R. LARDEUX (Insee)
    Abstract: French National Employment Agency grants benefit extensions to recipients who reach benefit exhaustion and have worked for a certain period of time since the start of their spell. To this end, claimants are required to send an Employer Certificate for each contract they undertook. Until mid-2014, above one fifth of unemployed workers did not fully certify their work history. In this paper, we show that a simple informational intervention may strongly increase the take-up of potential UI benefit extensions, especially among recipients with little unemployment experience. The "renewal-of-entitlement" reform of October 2014 introduced an informative letter automatically sent to claimants upon benefit exhaustion and emphasizing the role of Employer Certificates. Relying on the administrative file of French UI claimants (FNA) in a regression discontinuity design, we estimate that the letter reduced by 14 points the share of claimants who do not certify their full work history and extended the potential benefit duration by one month on average. This informational mailing narrowed the gap incertification behavior between claimants with different levels of unemployment experience.
    Keywords: Take-up, Unemployment Insurance, Information, Policy Evaluation
    JEL: C23 D83 J65
    Date: 2020
  7. By: Stampini, Marco (Inter-American Development Bank); Oliveri, María Laura (Inter-American Development Bank); Ibarrarán, Pablo (Inter-American Development Bank); Londoño, Diana (University of Rosario); Rhee, Ho June (Sean) (Middlebury College); James, Gillinda M. (Middlebury College)
    Abstract: We use data from time-use surveys and the Mexican Health and Aging Study (MHAS) to analyze the relationship between family long-term care (LTC) and female labor supply in four Latin American countries. Time-use survey data from Chile, Colombia, Costa Rica and Mexico shows that: (i) women provide the vast majority of family LTC; (ii) consistently across countries, women who provide LTC are less likely to work, and those who do work less hours per week and have a double burden of work and LTC. Multivariate analysis of longitudinal MHAS data shows that, after accounting for both individual and time fixed effects, parents' need for LTC is associated with both a significant drop in the likelihood of working (by 2.42 percentage points) and a reduction in the number of hours worked among women ages 50–64 who remain employed (by 7.03%). This finding has important gender equality implications. Also, in a region that is aging faster than any other in the world, social trends make this family provision of LTC unsustainable, increasing the need for policy action.
    Keywords: female labor supply, Long-Term Care (LTC), elderly care, care dependence, time-use surveys, Mexican Health and Aging Study (MHAS), Latin America, Chile, Colombia, Costa Rica, Mexico
    JEL: J14 J16 J18 J21 J22
    Date: 2020–10
  8. By: Frimmel, Wolfgang (University of Linz); Halla, Martin (University of Linz); Paetzold, Jörg (University of Salzburg); Schmieder, Julia (DIW Berlin)
    Abstract: We estimate the impact of parental health on adult children's labor market outcomes. We focus on health shocks which increase care dependency abruptly. Our estimation strategy exploits the variation in the timing of shocks across treated families. Empirical results based on Austrian administrative data show a significant negative impact on labor market activities of children. This effect is more pronounced for daughters and for children who live close to their parents. Further analyses suggest informal caregiving as the most likely mechanism. The effect is muted after a liberalization of the formal care market, which sharply increased the supply of foreign care workers.
    Keywords: informal care, formal care, aging, health, labor supply, labor migration
    JEL: J14 J22 I11 I18 R23
    Date: 2020–10
  9. By: De Graaf-Zijl, Marloes (UWV Netherlands Social Security Institute); Spijkerman, Marcel (UWV Netherlands Social Security Institute); Zwinkels, Wim (Epsilon Research)
    Abstract: This paper examines a broad set of short- and long-term impacts of Individual Placement and Support (IPS) for disability benefit recipients with severe mental disabilities. IPS is a specific intervention that first aims to place an individual in employment and subsequently trains the worker on the job. We compare the outcomes for IPS-recipients to a control group that received traditional vocational rehabilitation (TVR) services. We use administrative data to apply difference-in-difference estimation on a matched sample of 513 IPS recipients and almost 23,000 TVR-recipients in the Netherlands. Our results show that from six months after the start of the treatment onwards employment probabilities of IPS participants significantly outperform those of TVR participants. The higher probability to be in competitive employment does not come at the expense of fewer work in sheltered employment or trial periods. Nor do they come at the expense of shorter working hours or lower wages. The share of people on disability benefits declines equally in both group for quite some time after the start of the intervention but there is some indication that the benefit dependency in the long run declines faster for IPS recipients. Effects regarding medical costs are not statistically significant.
    Keywords: program evaluation, treatment effects, vocational rehabilitation, individual placement and support, temporary disability, labor supply, social insurance
    JEL: C21 H51 H55 I38 J22 J24
    Date: 2020–10
  10. By: P. PORA (Insee - Crest)
    Abstract: I leverage the staggered expansion of subsidized childcare institutions across municipalities, induced by asuccession of national plans, to investigate the effect of collective childcare on parents' labor outcomes and childcare choices in France between 2007 and 2015. These plans did not lead to any substantial change neither in the labor outcomes of parents nor in the take-up of paid parental leave. Instead, these collective childcare expansions crowded out more costly formal childcare solutions, such as childminders or at-home childcare. These crowding-out effects highlight a downside of family policy strategies that foster the coexistence of multiple childcare arrangements.
    Keywords: Labor supply, childcare, event-study, parental leave.
    JEL: J13 J16 J18 J22
    Date: 2020
  11. By: Si, Yafei; Zhou, Zhongliang; Su, Min; Hu, Han; Yang, Zesen; Chen, Xi
    Abstract: Doing "more" in healthcare can be a major threat to the delivery of high-quality health care. This study used coarsened exact matching to test the hypothesis of supplier-induced demand (SID) by comparing health care utilization and expenditures between patients affiliated with healthcare professionals and their counterpart patients not affiliated with healthcare professionals. Using the China Labor-force Dynamics Survey (CLDS) in 2014, we identified 806 patients affiliated with healthcare professionals and 22,788 patients not affiliated with healthcare professionals. The matched outpatient proportion of patients not affiliated with healthcare professionals was 0.6% higher (p=.754) than that of their counterparts, and the matched inpatient proportion was 1.1% lower (p =.167). Patients not affiliated with healthcare professionals paid significantly more (680 CNY or 111 USD, p
    Keywords: Supplier-induced Demand,Health Care Utilization,Healthcare Professionals,China
    JEL: I11 D82 I12 D90
    Date: 2020
  12. By: Jan Eeckhout; Alireza Sepahsalari
    Abstract: We propose a theory that analyzes how a workers’ asset holdings a↵ect their job productivity. In a labor market with uninsurable risk, workers choose to direct their search to jobs that trade o↵ productivity and wages against unemployment risk. Workers with low asset holdings have a precautionary job search motive, they direct their search to low productivity jobs because those o↵er a low risk at the cost of low productivity and a low wage. We show that such sorting occurs under a condition closely related to Decreasing Relative Risk Aversion and that the presence of consumption smoothing can reconcile the directed search model with negative duration dependence on wages, a robust empirical regularity that the canonical directed search model cannot rationalize. We calibrate the infinite horizon economy and find that this mechanism is quantitatively important. We evaluate a tax financed unemployment insurance (UI) scheme and how it a↵ects welfare. Aggregate welfare is inverted U-shaped in benefits: the insurance e↵ect UI dominates the incentive e↵ects for low levels of benefits and vice versa for high benefits. Also, when UI increases, total production falls in the economy while worker productivity increases. Finally, we compare a one-o↵ severance payment with per period benefits and find that per period benefits generate superior welfare.
    Date: 2020–10–26
  13. By: Emese Lazar. Shuyuan Qi; Radu Tunaru
    Abstract: Measuring model risk is required by regulators on financial and insurance markets. We separate model risk into parameter estimation risk and model specification risk, and we propose expected shortfall type model risk measures applied to Levy jump models and affine jump-diffusion models. We investigate the impact of parameter estimation risk and model specification risk on the models'ability to capture the joint dynamics of stock and option prices. We estimate the parameters using Markov chain Monte Carlo techniques, under the risk-neutral probability measure and the real-world probability measure jointly. We find strong evidence supporting modeling of price jumps.
    Date: 2020–10

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