nep-ias New Economics Papers
on Insurance Economics
Issue of 2021‒03‒22
eighteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. A Welfare Analysis of Competitive Insurance Markets with Vertical Differentiation and Adverse Selection By W. Bentley MacLeod
  2. Innovations in Medicaid: Impacts of a Home-Based Intensive Care Model for Complex Medicaid Beneficiaries By Matthew Niedzwiecki; Jia Pu; Maggie Samra
  3. Performance Pay and Alcohol Use in Germany By Mehrzad B. Baktash; John S. Heywood; Uwe Jirjahn
  4. The Impact of Crop Insurance on Farm Credit and Investment Decisions By Berger, Elizabeth; Ifft, Jennifer; Jodlowski, Margaret; Kuethe, Todd
  5. Crop insurance’s impact on agricultural lenders By Ifft, Jennifer; Kuethe, Todd; Lyons, Greg; Schultz, Alexander
  6. Grievance Redress by Courts in Consumer Finance Disputes. By Gulati, Karan; Sane, Renuka
  7. The Lock-in Effects of Part-Time Unemployment Benefits By Benghalem, Helène; Cahuc, Pierre; Villedieu, Pierre
  8. Bayesian optimal investment and reinsurance with dependent financial and insurance risks By Nicole B\"auerle; Gregor Leimcke
  9. The Effects of Unemployment Assistance on Unemployment Exits By Kyyrä, Tomi
  10. Efectos de las prestaciones por desempleo del Mecanismo de Protección al Cesante sobre la probabilidad de ocuparse en la formalidad y sobre la calidad de los emparejamientos By Linares Sánchez, Jose
  11. Unemployment Insurance Reforms in a Search Model With Endogenous Labor Force Participation By Johannes Goensch; Andreas Gulyas; Ioannis Kospentaris
  12. Survivors Benefits and Conjugal Behavior. Evidence from the Netherlands By Julie Tréguier; Simon Rabaté
  13. CIG: historical evolution, features and limitations By Salvatore Lo Bello
  14. Social security: past, present and future By Piachaud, David
  15. Sequential Trading With Coarse Contingencies By Sarah Auster; Jeremy Kettering; Asen Kochov
  16. Discount Rates, Mortality Projections, and Money's Worth Calculations for US Individual Annuities By James M. Poterba; Adam Solomon
  17. Increasing the Effective Retirement Age: Key Factors and Interaction Effects By Atav, Tilbe; Jongen, Egbert L. W.; Rabat, Simon
  18. Life-Cycle inequality: blacks and whites differentials in life expectancy, savings, income, and consumption By Giacomo De Giorgi; Luca Gambetti; Costanza Naguib

  1. By: W. Bentley MacLeod
    Abstract: A feature of many insurance markets is that they combine vertical differentiation (all consumers prefer high to low-coverage policies) and adverse selection (high cost customers prefer high-coverage plans). Building on Novshek and Sonnenschein (1978) and Azevedo and Gottlieb (2017), this paper characterizes the competitive equilibria in a vertically differentiated market characterized by adverse selection. This provides a simple, dynamic model of the market, along with their welfare consequences over time in response to policy changes. The model makes predictions consistent with recent evidence on the ACA exchange in the US (Frean et al. (2017)). Moreover, it provides a complete characterization of the health insurance “death spiral”. The death spiral leads to an inefficient outcome, but does not lead to a complete breakdown of the market. Rather, it predicts a large number of plans, with coverage that falls with an individual’s willingness to pay. It is shown that introducing a minimum coverage standard combined with an insurance mandate cannot restore efficiency. The optimal system depends on both the valuation of public funds and the social value of insurance. Depending on these parameters, a number of different types of systems may be optimal, including a single payer system with mandatory participation for all, such as the Canadian system, a mixed private-public system, as one sees in many countries, or a pure, free market system.
    JEL: D01 D21 D41 I11 I13 L15
    Date: 2021–03
  2. By: Matthew Niedzwiecki; Jia Pu; Maggie Samra
    Abstract: This issue brief summarizes Mathematica’s evaluation of Landmark Health’s home-based intensive care model as it was delivered to complex Medicaid and dually eligible beneficiaries in California from 2016-2018. The evaluation assessed the model’s impacts on health care utilization and quality.
    Keywords: home-based services, behavioral health, Medicaid, Medicare, California, complex care
  3. By: Mehrzad B. Baktash; John S. Heywood; Uwe Jirjahn
    Abstract: We study the link between performance pay and alcohol use in Germany, a country with mandated health insurance. Previous research from the US argues that alcohol use as a form of “self-medication” may be a natural response to the stress and uncertainty of performance pay when many workers do not have access to health insurance. We find that the likelihood of consuming each of four types of alcohol (beer, wine, spirits, and mixed drinks) is higher for those receiving performance pay even controlling for a long list of economic, social and personality characteristics and in sensible IV estimates. We also show that the total number of types of alcohol consumed is larger for those receiving performance pay. We conclude that even in the face of mandated health insurance, the link found in the US persists in Germany.
    Keywords: Performance Pay; Alcohol; Stress
    JEL: I12 J33
    Date: 2021
  4. By: Berger, Elizabeth; Ifft, Jennifer; Jodlowski, Margaret; Kuethe, Todd
    Keywords: Crop Production/Industries
    Date: 2020–10
  5. By: Ifft, Jennifer; Kuethe, Todd; Lyons, Greg; Schultz, Alexander
    Keywords: Crop Production/Industries
    Date: 2020–10
  6. By: Gulati, Karan (National Institute of Public Finance and Policy); Sane, Renuka (National Institute of Public Finance and Policy)
    Abstract: This paper studies how courts in India have dealt with consumer finance disputes. It presents the organisation of the courts that hear consumer finance cases. It reviews the 60 most cited cases to study the position that courts have taken in banking and insurance disputes. For the cases studied, it finds that courts have generally granted relief to consumers in banking disputes. In the case of insurance, courts have emphasised contractual compliance. This is so even if the contracts themselves were opaque or had unfair terms. The paper also finds that courts award low compensation and take a long time for adjudication. It suggests that courts should put in place systems to facilitate class action suits and bring in specialisation to deal with consumer finance disputes.
    Date: 2021–03
  7. By: Benghalem, Helène (University of Lausanne); Cahuc, Pierre (Sciences Po, Paris); Villedieu, Pierre (Sciences Po, Paris)
    Abstract: We ran a large randomized controlled experiment among about 150,000 recipients of unemployment benefits insurance in France in order to evaluate the impact of part-time unemployment benefits. We took advantage of the lack of knowledge of job seekers regarding this program and sent emails presenting the program. The information provision had a significant positive impact on the propensity to work while on claim, but reduced the unemployment exit rate, showing important lock-in effects into unemployment associated with part-time unemployment benefits. The importance of these lock-in effects implies that decreasing the marginal tax rate on earnings from work while on claim in the neighborhood of its current level does not increase labor supply and increases the expenditure net of taxes of the unemployment insurance agency.
    Keywords: unemployment insurance, part-time unemployment benefits, lock-in effects, unemployment duration
    JEL: H5 J64 J65
    Date: 2021–03
  8. By: Nicole B\"auerle; Gregor Leimcke
    Abstract: Major events like natural catastrophes or the COVID-19 crisis have impact both on the financial market and on claim arrival intensities and claim sizes of insurers. Thus, when optimal investment and reinsurance strategies have to be determined it is important to consider models which reflect this dependence. In this paper we make a proposal how to generate dependence between the financial market and claim sizes in times of crisis and determine via a stochastic control approach an optimal investment and reinsurance strategy which maximizes the expected exponential utility of terminal wealth. Moreover, we also allow that the claim size distribution may be learned in the model. We give comparisons and bounds on the optimal strategy using simple models. What turns out to be very surprising is that numerical results indicate that even a minimal dependence which is created in this model has a huge impact on the control in the sense that the insurer is much more prudent then.
    Date: 2021–02
  9. By: Kyyrä, Tomi (VATT, Helsinki)
    Abstract: Many countries have a two-tiered unemployment compensation system which provides earnings-related unemployment insurance for a limited period of time and less generous unemployment assistance thereafter. This study evaluates the effects of a reform in Finland that increased the level of unemployment assistance by 22%. The reform led to a drop of 9% in the unemployment exit hazard, which can be attributed to fewer exits to both employment and inactivity. The implied elasticities suggest that a 10% increase in unemployment assistance reduces the unemployment exit hazard by 4% and the job finding hazard by 6%. These effects are relatively small compared to the existing evidence on the effects of unemployment insurance benefits.
    Keywords: unemployment assistance, labor market subsidy, hazard rate, unemployment duration
    JEL: J64 J68
    Date: 2021–03
  10. By: Linares Sánchez, Jose
    Abstract: In 2013, the Colombian government created the “Mecanismo de Proteccion al Cesante”, a mechanism for unemployed individuals to reach consumption smoothing and facilitate their re-entering into the workforce. This study estimates the medium (12 months) and long term (18 months) impacts of the unemployment benefits on the probability to access to a formal employment and on labour-income. The document adapts and applies a non-experimental evaluation methodology —differences in differences (DD)—. It was discovered that being a beneficiary of MPC increases, only in the medium term, the probability to remain in the formal labour market, understood as the social security contribution to health care and pension benefits, but in the long term this probability decreases. Also, in the medium and long term, it was found that the program has negative impacts on the matching quality of the employments achieved by the beneficiaries of the program, which means, the scheme fails to stabilize the income of the unemployed to obtain better job matches in the form of better-paying jobs.
    Keywords: Unemployment insurance, Colombia, impact evaluation, unemployment protection scheme.
    JEL: C21 J64 J65 J68
    Date: 2020–01–03
  11. By: Johannes Goensch; Andreas Gulyas; Ioannis Kospentaris
    Abstract: This paper develops a life-cycle search model with a labor force participation decision of workers, job-to-job transitions and endogenous job creation to study unemployment insurance (UI) reforms. The calibrated model replicates the aggregate and life-cycle patterns of labor market flows from the Current Population Survey, as well as the worker labor market histories over four months. The model predicts that an UI extension to 99 weeks leads to a slight decrease in labor productivity, the employment to population ratio and the labor force participation rate, but to a non-trivial increase in the unemployment rate. An equally expensive increase in UI benefits, holding the eligibility duration unchanged, yields a smaller increase in the unemployment rate and a smaller decrease in the labor force participation rate. We show that disregarding the effect of flows in and out of the labor force and job-to-job transitions would significantly bias the response of the unemployment rate and labor productivity to UI reforms.
    Keywords: Unemployment Insurance; Labor Market Flows; Directed Search
    JEL: E24 J63 J64 J65 J68
    Date: 2021–02
  12. By: Julie Tréguier (INED - Institut national d'études démographiques, IPP - Institut des politiques publiques, EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Simon Rabaté (CPB - Netherlands Bureau for Economic Policy Analysis)
    Abstract: This paper investigates the impact of survivors insurance on marital behavior. We study the 1996 Dutch reform which considerably tightened eligibility rules to survivors' benefits. Exploiting a discontinuity in date of birth eligibility to survivors insurance and using a rich and exhaustive of the Dutch population administrative dataset, we carry out a regression discontinuity design and we find no evidence of the reform on divorce probability. Exploring possible explanations for our zero-effect result, we study how labor supply responses can compensate the income drop the reform induced. We find a strong increase in the labor force participation of widows after the reform. However this response does not completely offset the decrease in income generated form the cut in survivors benefits.
    Date: 2021–03–02
  13. By: Salvatore Lo Bello (Bank of Italy)
    Abstract: TThis paper describes the rules and the historical evolution of the Italian short-time work scheme system. Exploiting both sectoral and firm-level data, it analyses the actual use of such instruments across economic sectors in the period 2009-2019. Finally, it describes the system for financing short-time work schemes, and highlights some potential inefficiencies related to extraordinary wage supplementation (CIG). The system is segmented and heterogeneous. The actual use of wage supplementation schemes is highly concentrated in a few sectors, and a substantial share of employees is excluded from using such instruments. The sectoral heterogeneity reflects the availability of alternative labor cost adjustment channels (e.g. temporary contracts) and firm size. The financing system features structural imbalances that may be corrected also by revising the mechanism used to compute the contributions to be paid.
    Keywords: labor demand, labor costs, unemployment insurance
    JEL: J23 J30 J65
    Date: 2021–02
  14. By: Piachaud, David
    Abstract: Over the past century, social security in advanced economies has been transformed, and in this paper the history of its growth and some of the causes are reviewed. Yet poverty has not ended and many question the future of social security. Four systems of social security are discussed: social assistance, social insurance, targeted universal benefits and universal basic income. Possible reforms and steps to promote the survival of social security as a core element of a just and civilised society are proposed.
    Keywords: social security; social protection; poverty; targeting; basic income
    JEL: E6 N0
    Date: 2020–12–07
  15. By: Sarah Auster; Jeremy Kettering; Asen Kochov
    Abstract: We consider a dynamic economy in which agents are initially unaware of some risks. As awareness of these risks emerges, markets re-open so agents can re-optimize and purchase insurance. An inefficiency may nonetheless arise as the cost of insurance is not spread over time. This ``savings mistake" does not arise in two benchmark cases. In those, the ability to re-trade fully negates the initial misperception of risks. We also demonstrate the possibility of unexpected default. This arises when agents borrow "too much" and once perceptions change, there is no equilibrium price at which they can refinance their debt.
    Keywords: coarse perceptions, unforeseen risks, sequential trading, default
    JEL: D50 D81 D83
    Date: 2021–01
  16. By: James M. Poterba; Adam Solomon
    Abstract: Estimates the expected present discounted value (EPDV) of future payouts on both immediate and deferred annuities are sensitive to the discount rate used to value future payment streams and assumptions about future mortality rates. This paper illustrates this with respect to annuities that were available in the US retail insurance market in 2020. The spread between the interest rates on Treasury and corporate bonds was high by historical standards as a share of the riskless Treasury yield during much of 2020, making the choice of discount rate more consequential than in the past. The EPDV estimates also depend on whether the rapid but since-attenuated decline in US old-age mortality rates during the 1990s and early 2000s is extrapolated to future decades. The “money’s worth” is the EPDV divided by the annuity’s purchase price. Our central estimates, using discount rates drawn from the corporate BBB yield curve and future mortality rates that combine a Society of Actuaries individual annuitant mortality table with projections of future mortality improvements from the Social Security Administration, suggest money’s worth values for annuities offered to 65-year-old men and women of about 92 cents per premium dollar. Recent Department of Labor rulemaking requires defined contribution plan sponsors to provide participants with estimates of the annuity income stream that their plan balance could purchase. These estimates, like EPDVs, are also sensitive to both prospective rate of return and mortality rate assumptions.
    JEL: G22 J14 J26
    Date: 2021–03
  17. By: Atav, Tilbe (CPB Netherlands Bureau for Economic Policy Analysis); Jongen, Egbert L. W. (CPB Netherlands Bureau for Economic Policy Analysis); Rabat, Simon (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: We study the effects of the recent increase in the statutory retirement age (SRA) in the Netherlands, using RDD and rich administrative data on the universe of the Dutch population. We find large interaction effects with a preceding early retirement reform. The employment effect of the SRA reform is much larger for cohorts receiving less generous early retirement benefits. Indeed, the level of employment before the SRA, together with the retirement hazard at the SRA, is key to understanding the effects of retirement age reforms. Our results further point to a big role for automatic job termination in the Netherlands.
    Keywords: social insurance, employment, statutory retirement age, bunching, Netherlands
    JEL: J14 J26
    Date: 2021–02
  18. By: Giacomo De Giorgi; Luca Gambetti; Costanza Naguib
    Abstract: Life expectancy for Blacks is about 8 year shorter than for Whites. A shorter life expectancy, in line with the theoretical prediction of a simple model, determines a much lower amount of savings and wealth accumulation and therefore a lower degree of insurance. This, in turn, contributes to persistent racial differentials in life-cycle consumption. Starting from the same position in the consumption distribution Blacks end up in a lower percentile than Whites after a few decades. This is particularly marked for those Blacks who start at the top of the consumption distribution, where Whites are much more per- sistent. We document these facts using 40 years of PSID data (1981-2017).
    Keywords: Consumption, Income, Earnings persistence, quintile transitions
    JEL: E21 E63 D12 C3
    Date: 2021–03

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