nep-ias New Economics Papers
on Insurance Economics
Issue of 2021‒05‒03
twelve papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Optimal Social Assistance and Unemployment Insurance in a Life-Cycle Model of Family Labor Supply and Savings By Haan, Peter; Prowse, Victoria
  2. Inattention and Switching Costs as Sources of Inertia in Medicare Part D By Heiss, Florian; McFadden, Daniel; Winter, Joachim; Wuppermann, Amelie; Zhou, Bo
  3. Insurance, Redistribution, and the Inequality of Lifetime Income By Haan, Peter; Kemptner, Daniel; Prowse, Victoria
  4. Sick Pay and Absence from Work: Evidence from Flu Exposure By Jakub Grossmann
  5. Temperature and non-communicable diseases: Evidence from Indonesia's primary health care system. By Manuela K. Fritz
  6. Value of Life and Annuity Demand By Pashchenko, Svetlana; Porapakkarm, Ponpoje
  7. Should We Worry About Older Workers with Nontraditional Jobs? By Geoffrey T. Sanzenbacher
  8. Will Imports and Robots Push Older Workers into Nontraditional Jobs? By Matthew S. Rutledge; Gal Wettstein; Sara Ellen King
  9. Circular economy, banks and other financial institutions: what’s in it for them? By Ozili, Peterson K
  10. Do Stronger Employment Discrimination Protections Decrease Reliance on Social Security Disability Insurance? Evidence from the U.S. Social Security Reforms By Patrick Button; Mashfiqur R. Khan; Mary Penn
  11. Common Ownership of Competing Firms: Evidence from Australia By Leigh, Andrew; Triggs, Adam
  12. Is Mobile Money Changing Rural Africa? Evidence from a Field Experiment By Catia Batista; Pedro C. Vicente

  1. By: Haan, Peter (DIW Berlin); Prowse, Victoria (Purdue University)
    Abstract: We empirically analyze the optimal mix and optimal generosity of unemployment insurance and social assistance programs. To do so, we specify a structural life-cycle model of the labor supply, savings, and social assistance claiming decisions of singles and married couples. Partial insurance against wage and employment shocks is provided by social programs, savings, and the labor supplies of all adult household members. We show that the optimal policy mix is dominated by moderately generous social assistance, which guarantees a permanent universal minimum household income, with only a minor role for temporary earnings-related unemployment insurance. The optimal amount of social assistance is heavily influenced by income pooling in married households. This pooling provides partial insurance against negative economic shocks, reducing the optimal generosity of social assistance.
    Keywords: unemployment insurance; social assistance; design of benefi t programs; life-cycle labor supply; family labor supply; intra-household insurance; household savings; employment risk; added worker e ffect;
    JEL: J18 J68 H21 I38
    Date: 2019–09–30
  2. By: Heiss, Florian (University of Düsseldorf); McFadden, Daniel (University of California, Berkeley); Winter, Joachim (LMU Munich); Wuppermann, Amelie (University of Halle-Wittenberg); Zhou, Bo (University of Southern California, Los Angeles)
    Abstract: Consumers’ health plan choices are highly persistent even though optimal plans change over time. This paper separates two sources of inertia, inattention to plan choice and switching costs. We develop a panel data model with separate attention and choice stages, linked by heterogeneity in acuity, i.e., the ability and willingness to make diligent choices. Using data from Medicare Part D, we find that inattention is an important source of inertia but switching costs also play a role, particularly for low-acuity individuals. Separating the two stages and allowing for heterogeneity is crucial for counterfactual simulations of interventions that reduce inertia.
    Keywords: medicare; prescription drugs; health insurance demand; dynamic discrete choice;
    JEL: I13 D12 J14 C25
    Date: 2019–12–18
  3. By: Haan, Peter (DIW Berlin); Kemptner, Daniel (DIW Berlin); Prowse, Victoria (Purdue University)
    Abstract: Individuals vary considerably in how much they earn during their lifetimes. We study how the tax-and-transfer system offsets inequalities in lifetime earnings, which would otherwise translate into differences in living standards. Based on a life-cycle model, we find that redistribution by taxes and transfers offsets 54% of the inequality in lifetime earnings that is due to heterogeneous skill endowments. Meanwhile, taxes and transfers insure 45% of lifetime earnings risk. Taxes would provide more insurance if based on lifetime instead of annual earnings. Requiring wealthy individuals to repay social assistance received when younger would strengthen the insurance and redistributive functions of social assistance.
    Keywords: lifetime earnings; lifetime income; tax-and-transfer system; taxation; unemployment insurance; disability benefits; social assistance; inequality; redistribution; insurance; endowments; risk; dynamic life-cycle models;
    JEL: D63 H23 I24 I38 J22 J31
    Date: 2019–09–30
  4. By: Jakub Grossmann
    Abstract: The system of sick-pay is critical for balancing the economic and health costs of infectious diseases. Surprisingly, most research on sick-pay reforms does not rely on variation in worker exposure to diseases when investigating absences from work. This paper studies the effects on absences from work of changes in health-insurance coverage of the first three days of sickness. We explore geographic variation in the prevalence of infectious diseases, primarily the seasonal flu, to provide variation in the need for sickness insurance. Estimates based on the Czech Structure of Earnings Survey imply that when sickness insurance is not available, total hours of work missed are not affected, but employees rely on paid and unpaid leave instead of sick-leave to stay home. The substitution effects are heterogenous across occupations and socio-demographic characteristics of employees, and suggest that workers do not spread infectious diseases at the workplace as a result of the absence of sickness insurance coverage in the first three days of sickness.
    Keywords: sickness insurance; exposure to sickness; policy reforms; Czech Republic;
    JEL: I13 I18 J3
    Date: 2021–03
  5. By: Manuela K. Fritz
    Abstract: Increasing ambient temperatures will severely affect human health in the decades to come and will exacerbate a variety of chronic health conditions. In this paper, I examine the temperature- morbidity relationship in the tropical climate environment of Indonesia with a focus on chronic, non-communicable diseases, namely diabetes, cardiovascular and respiratory diseases. Drawing on detailed individual level data from the Indonesian national health insurance scheme JKN and linking it with meteorological data on daily temperature realizations on a one spatial level, I estimate the e ect of high ambient temperatures on the daily number of primary health care visits. Exploiting the panel structure of the data and using a distributed lag model, I and that all-cause, diabetes and cardiovascular disease morbidity substantially increase at days with high mean temperatures. Specifically, on a day with a mean temperature above 29.5°C, the daily visits for diabetes and cardiovascular diseases increase by 29% and 19%, respectively, and these increases are permanent and not offset by visit displacement. Contrarily, I do not and any effects on respiratory disease morbidity. Heterogeneity analyses suggest that elderly and women suffer more severely from high temperatures. Back-of-the-envelope cost calculations indicate a substantial financial burden for the Indonesian health care system due to increasing temperatures.
    Keywords: Health, Non-Communicable Diseases, Temperature, Climate Change, Indonesia.
    JEL: I10 I13 I18 Q50 Q51 Q54
    Date: 2021–04
  6. By: Pashchenko, Svetlana; Porapakkarm, Ponpoje
    Abstract: How does the value of life affect annuity demand? To address this question, we construct a portfolio choice problem with three key features: i) agents have access to life-contingent assets, ii) they always prefer living to dying, iii) agents have non-expected utility preferences. We show that as utility from being alive increases, annuity demand decreases (increases) if agents are more (less) averse to risk rather than to intertemporal fluctuations. Put differently, if people prefer early resolution of uncertainty, they are less interested in annuities when the value of life is high. Our findings have two important implications. First, we get better understanding of the well-known annuity puzzle. Second, we argue that the observed low annuity demand provides evidence that people prefer early rather than late resolution of uncertainty.
    Keywords: annuities, value of a statistical life, portfolio choice problem, life-contingent assets, longevity insurance
    JEL: D91 G11 G22
    Date: 2021–04–15
  7. By: Geoffrey T. Sanzenbacher
    Abstract: Nontraditional jobs Ð defined here as those without health and retirement benefits Ð often concern policymakers. They worry that the lack of health insurance leaves workersÕ finances vulnerable to health shocks, while the lack of retirement plans will stunt savings. On the other hand, workers might use these jobs only infrequently to fill the gap between periods of more traditional employment, or they could use them to extend their careers past typical retirement ages. And, in any case, such workers may have access to benefits from family members or public programs. So, the question is: should we worry about these jobs? To answer the question, this brief synthesizes the findings of four recent Center studies on nontraditional jobs and older workers, a group that could be particularly vulnerable without employer benefits. The discussion proceeds as follows. The first section introduces the definition of nontraditional jobs used in this body of research. The second section discusses nontraditional jobs for workers approaching retirement Ð i.e., in their 50s and early 60s. It focuses on how frequently these jobs are used, whether workers are able to get health and retirement benefits elsewhere, and whether pressures like automation and trade increase the prevalence of these jobs. The third section turns to a different group of older workers Ð those of retirement age, i.e., in their mid- to late-60s. It examines whether the workers in this age group who use nontraditional jobs to extend their careers improve their financial situation. The final section concludes that some concern over nontraditional jobs is warranted. Most workers approaching retirement in these jobs use them frequently and, though they often find health insurance, they generally lack a viable alternative to save for retirement. However, workers in their 60s who switch to nontraditional jobs do improve their financial situation.
    Date: 2020–12
  8. By: Matthew S. Rutledge; Gal Wettstein; Sara Ellen King
    Abstract: Recent research has called attention to workers in nontraditional jobs Ð defined here as jobs without retirement and health benefits, particularly those with volatility in hours or wages. At the same time, U.S. workers are facing growing competition from trade and automation. The question is: are trade and automation pushing more workers into nontraditional jobs? This issue may be a particular concern for older workers, who increasingly need longer careers with continued access to retirement plans and health coverage to secure an adequate retirement. To explore the relationship between trade, automation, and nontraditional work, this brief, based on a recent study, tests whether workers are more likely to be in nontraditional jobs, or to transition to such jobs, in states that have greater exposure to trade and automation. The discussion proceeds as follows. The first section defines nontraditional work and presents trends in trade and automation. The second section describes the analytic approach. The third section reports the results, which show no evidence that a rise in import competition leads workers to end up in Ð or switch to Ð nontraditional jobs. However, some evidence suggests that automation does have an effect, particularly for older workers relative to mid-career workers. The final section concludes that as automation continues to increase, nontraditional jobs may grow more common, underscoring the need for alternative sources of retirement saving and health insurance coverage.
    Date: 2020–03
  9. By: Ozili, Peterson K
    Abstract: In this paper, I highlight the benefit of the circular economy to banks and other financial institutions. The paper uses discourse analysis methodology to present an overview of the circular economy concept and the benefit of the circular economy to banks and other financial institutions. The findings show that some benefit of the circular economy to banks include: (i) greater loan diversification opportunities, (ii) promotes responsible and sustainable banking, (iii) increased lending to circular clients and the recycling sector which means more profit for banks, and (iv) correcting the bad perception about banks in society. Some benefit of the circular economy to other financial institutions include: (i) issuance of special insurance policies for reused products; (ii) greater sustainability-adjusted return on investment; (iii) greater funding to microfinance institutions; and (iv) more opportunities for collaborative funding to circular businesses. This study contributes to the scant literature that examine the role of the finance industry in the circular economy.
    Keywords: circular economy, linear economy, banks, financial institutions, criticism, sustainability, climate change, waste, insurance, sustainable finance, sustainable banking, hedge funds, microfinance institutions
    JEL: G02 G21 G22 G23 G24 G29 Q01 Q20 Q32 Q54 Q56
    Date: 2021
  10. By: Patrick Button; Mashfiqur R. Khan; Mary Penn
    Abstract: This paper examines spillovers onto Social Security Disability Insurance (SSDI) that occurred due to the Social Security Amendments of 1983, which, among other changes, gradually increased the retirement age for full benefits from 65 to 67. We determine whether the spillovers onto SSDI were different in states with age and disability discrimination laws that were broader (covered more people) or stronger (allowed for more damages for plaintiffs) than the federal Age Discrimination in Employment Act and the Americans with Disabilities Act. Our paper uses three sources of data: (1) counts of the universe of SSDI applications and receipts by state, age group, sex, and year; (2) the Health and Retirement Study, merged with restricted-access state identifiers; and, (3) the Health and Retirement Study, merged with restricted access state identifiers and Social Security Administration Form-831 disability records. To quantify the moderating impact of existing state laws on spillovers onto SSDI applications, receipts and employment, we use a difference-in-differences approach, comparing age cohorts who were affected by the reforms to similar age cohorts who were unaffected, and then this comparing this affected-unaffected difference across states by state law. Using the Health and Retirement Study data, we also conduct heterogeneity analysis to determine if effects differed for different age groups (ages 55-61, ages 62-64, ages 65 to the full benefits retirement age), those with or without disabilities, and by sex. The paper found that: ¥ Spillovers to SSDI application and receipt occurred mostly at ages 55-61 rather and ages closer to traditional retirement ages. These spillovers almost exclusively occurred for those with disabilities only. The employment effects from the Social Security Amendments instead affected those without disabilities and those closer to traditional retirement ages more. Women faced larger spillovers to both SSDI application and receipt and to employment. ¥ States with a medical definition of disability, which much more broadly covers individuals by state employment discrimination laws compared to the restrictive federal Americans with Disabilities Act, had reduced spillovers to SSDI application. In some cases, this was also associated with reductions in SSDI receipt, but our strongest evidence suggests just a decrease in SSDI applications. ¥ There is weak evidence that other broader or stronger features of state disability discrimination laws reduce SSDI application and receipt. ¥ We do not find any clear moderating effect of disability discrimination laws on employment. ¥ We do not find any moderating effect of broader or stronger features of state age discrimination laws and SSDI application and receipt, but we do find evidence that these features boost employment for those approaching traditional retirement age. The policy implications of the findings are: ¥ A broader definition of disability under discrimination law, like the medical definition of disability, seems to be associated with reduced SSDI applications. These foregone SSDI applications, which we argue in the paper were likely unsuccessful, reduced costs both for applicants and for SSA, given the large and indirect costs of SSDI application, especially given the long wait times for a final decision. ¥ Other stronger and broader features of disability discrimination laws may also reduce reliance on SSDI. ¥ There is not clear evidence that disability discrimination laws boost or reduce employment, suggesting that they may not have a strong role in affecting employment outcomes for individuals with disabilities and/or older workers.
    Date: 2021–04
  11. By: Leigh, Andrew (Australian National University); Triggs, Adam (Australian National University)
    Abstract: We provide the first estimates of the extent of common ownership of competing firms in Australia. Combining data on market shares and substantial shareholdings, we calculate the impact of common ownership on effective market concentration. Among firms where we can identify at least one owner, 31 percent share a substantial owner with a rival company. Analysing 443 industries, we identify 49 that exhibit common ownership, including commercial banking, explosives manufacturing, fuel retailing, insurance and iron ore mining. Across the Australian economy, common ownership increases effective market concentration by 21 percent. Our estimates imply that if listed firms seek to maximise the value of their investors' portfolios, then they place the same value on $3.70 of their competitors' profits as on $1 of their own profits. We discuss the limitations of the available data, and the potential implications of common ownership for competition in Australia.
    Keywords: horizontal shareholding, market concentration, Herfindahl-Hirschman Index, Modified Herfindahl-Hirschman Index, antitrust, competition
    JEL: L11 L12 D42 D43
    Date: 2021–04
  12. By: Catia Batista (Nova School of Business and Economics, CReAM, IZA and NOVAFRICA); Pedro C. Vicente (Nova School of Business and Economics, BREAD, and NOVAFRICA)
    Abstract: Rural areas in sub-Saharan Africa are typically underserved by financial services. We measure the economic impact of introducing mobile money for the first time in rural villages of Mozambique using a randomized control trial. This intervention led to consumption smoothing through increased transfers as a response to both geo-referenced village-level floods and household-level idiosyncratic shocks. Importantly, we find that the availability of mobile money increased migration out of rural areas, where we observe lower agricultural activity and investment. Our work illustrates how financial inclusion can accelerate African urbanization and structural change while improving welfare in rural areas.
    Keywords: mobile money, migration, remittances, technology adoption, insurance, consumption smoothing, investment, savings, Mozambique, Africa.
    JEL: O12 O15 O16 O33 G20 R23
    Date: 2021–04

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