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on Insurance Economics |
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Issue of 2021‒05‒17
seventeen papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Betsy Q. Cliff; Sarah Miller; Jeffrey T. Kullgren; John Z. Ayanian; Richard Hirth |
| Abstract: | Recent expansions of Medicaid eligibility have come with increased experimentation with enrollee cost-sharing. In this paper, we exploit a discontinuous premium increase at the federal poverty level in Michigan’s Medicaid expansion program to test low-income individuals’ sensitivity to premiums using linked enrollment and claims data. At the cutoff, average premiums increase by $3.15 and the probability of disenrollment increases by 2.3 percentage points. Increased disenrollment occurs among those with fewer documented medical needs at baseline, but not among those with greater medical needs. These results suggest healthier low-income individuals may be sensitive to even modest health insurance premiums, and that premiums may induce adverse selection in Medicaid plans. |
| JEL: | I1 I12 I13 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28762&r= |
| By: | Yoo, Sunbin; Kawabata, Yuta; Kumagai, Junya; Keeley, Alexander; Managi, Shunsuke |
| Abstract: | We examine the impact of life and health insurance spending on subjective well-being. Taking advantage of insurance spending and subjective well-being data on more than 700,000 individuals in Japan, we examine whether insurance spending can buffer declines in subjective well-being due to exposure to mass disaster. We find that insurance spending can buffer drops in subjective well-being by approximately 3-6% among those who experienced the mass disaster of the great East Japan earthquake. Subjective health increases the most, followed by life satisfaction and happiness. On the other hand, insurance spending decreases the subjective well-being of those who did not experience the earthquake by approximately 3-7%. We conclude by monetizing the subjective well-being loss and calculating the extent to which insurance spending can compensate for it. The monetary value of subjective well-being buffered through insurance spending is approximately 33,128 USD for happiness, 33,287 USD for life satisfaction, and 19,597 USD for subjective health for a person in one year. Therefore, we confirm that life/health insurance serves as an ideal option for disaster adaptation. Our findings indicate the importance of considering subjective well-being, which is often neglected when assessing disaster losses. |
| Keywords: | Risk; Insurance; Great East Japan Earthquake; Subjective Well-being; |
| JEL: | H0 I13 Q5 Q54 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107632&r= |
| By: | Lancia, Francesco; Russo, Alessia; Worrall, Tim S |
| Abstract: | Optimal intergenerational insurance is examined in a stochastic overlapping generations endowment economy with limited enforcement of risk-sharing transfers. Transfers are chosen by a benevolent planner who maximizes the expected discounted utility of all generations while respecting the participation constraint of each generation. We show that the optimal sustainable intergenerational insurance is history dependent. The risk from a shock is unevenly spread into the future, generating heteroscedasticity and autocorrelation of consumption even in the long run. The optimum can be interpreted as a social security scheme characterized by a minimum welfare entitlement for the old and state-contingent entitlement thresholds. |
| Keywords: | Intergenerational insurance; Limited Commitment; Risk Sharing; stochastic overlapping generations |
| JEL: | D64 E21 H55 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15540&r= |
| By: | Victoria R. Marone; Adrienne Sabety |
| Abstract: | We study the welfare effects of offering choice over financial coverage levels––"vertical choice''––in regulated health insurance markets. Though the efficient level of coverage, which trades off the value of risk protection and the social cost from moral hazard, likely varies across consumers, we emphasize that this variation alone is not sufficient to motivate choice. When premiums cannot reflect individual costs, consumers may not select their efficient coverage level. We show that vertical choice is efficient only if consumers with higher willingness to pay for insurance have a higher efficient level of coverage. Using administrative data from a large public employer, we investigate this condition empirically and find that the welfare gains from vertical choice are either zero or economically small. |
| JEL: | D82 G22 I13 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28779&r= |
| By: | Yavuz Arslan; Ahmet Degerli; Gazi Kabaş |
| Abstract: | We use disaggregated U.S. data and a border discontinuity design to show that more generous unemployment insurance (UI) policies lower bank deposits. We test several channels that could explain this decline and find evidence consistent with households lowering their precautionary savings. Since deposits are the largest and most stable source of funding for banks, the decrease in deposits affects bank lending. Banks that raise deposits in states with generous UI policies squeeze their small business lending. Furthermore, counties that are served by these banks experience a higher unemployment rate and lower wage growth. |
| Keywords: | Bank funding; Bank lending; Labor; Precautionary saving; Unemployment insurance |
| JEL: | D14 G21 J20 J65 |
| Date: | 2021–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-27&r= |
| By: | Atmaca, Sumeyra; Kirschenmann, Karolin; Ongena, Steven; Schoors, Koen |
| Abstract: | We employ proprietary data from a large bank to analyze how (in times of crisis) depositors react to a bank nationalization, re-privatization and an accompanying increase in deposit insurance. Nationalization slows depositors fleeing the bank, provided they have sufficient trust in the national government, while the increase in deposit insurance spurs depositors below the new 100K limit to deposit more. Prior to nationalization, depositors bunch just below the then-prevailing 20K limit. But they abandon bunching entirely during state-ownership, to return to bunching below the new 100K limit after re-privatization. Especially depositors with low switching costs are moving money around. |
| Keywords: | bank nationalization; coverage limit; deposit insurance; depositor heterogeneity |
| JEL: | G21 G28 H13 N23 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15547&r= |
| By: | Yusuf Mercan; Benjamin Schoefer; Petr Sedláček |
| Abstract: | In recessions, unemployment increases despite the—perhaps counterintuitive—fact that the number of unemployed workers finding jobs expands. We propose a theory of unemployment fluctuations resting on this countercyclicality of gross flows from unemployment into employment. In recessions, the abundance of new hires “congests” the jobs the unemployed fill—diminishing their marginal product and discouraging further job creation. Countercyclical congestion explains 30-40% of US unemployment fluctuations. Additionally, it explains the excess procyclicality of new hires' wages, the cyclical labor wedge, the large earnings losses from job displacement and from graduating during recessions, and the insensitivity of unemployment to policies such as unemployment insurance. |
| JEL: | D24 E24 E32 J21 J23 J64 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28771&r= |
| By: | Fritz, Manuela |
| 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 temperaturemorbidity 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 fine spatial level, I estimate the effect 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 find 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 29.5êC, 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 find 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 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:upadvr:v8421&r= |
| By: | Mathithibane, Mpho Steve |
| Abstract: | The aim of this paper is to evaluate the effectiveness of climate risk coping strategies of smallholders in a South African perspective. A quantitative research approach was followed using surveys to collect primary data from participants in key maize producing provinces of South Africa. The results analysed employing multinomial regression, show that reduction of crop production in times of uncertainly is the most preferred coping mechanism. The study further revealed that farmers who use crop insurance have the highest level of preparedness to manage weather risk. The findings contribute to advancing knowledge, guiding policymakers and increasing efficiencies of risk mitigation efforts especially climate risk solutions in the context of climate change and persistent drought affecting South African farmers. |
| Keywords: | Risk management, risk coping, risk mitigation, smallholder farmers |
| JEL: | Q14 |
| Date: | 2021–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107677&r= |
| By: | De Nardi, Mariacristina; Fella, Giulio; Paz-Pardo, Gonzalo |
| Abstract: | The extent to which households can self-insure and the government can help them to do so depends on the wage risk that they face and their family structure. We study wage risk in the UK and show that the persistence and riskiness of wages depends on one's age and position in the wage distribution. We also calibrate a model of couples and singles with two alternative processes for wages: a canonical one and a flexible one that allows for the much richer dynamics that we document in the data. We use our model to show that allowing for rich wage dynamics is important to properly evaluate the effects of benefit reform: relative to the richer process, the canonical process underestimates wage persistence for women and generates a more important role for in-work benefits relative to income support. The optimal benefit configuration under the richer wage process, instead, is similar to that in place in the benchmark UK economy before the Universal Credit reform. The Universal Credit reform generates additional welfare gains by introducing an income disregard for families with children. While families with children are better off, households without children, and particularly single women, are worse off. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15608&r= |
| By: | Thilini Mahanama; Abootaleb Shirvani; Svetlozar Rachev |
| Abstract: | Crime can have a volatile impact on investments. Despite the potential importance of crime rates in investments, there are no indices dedicated to evaluating the financial impact of crime in the United States. As such, this paper presents an index-based insurance portfolio for crime in the United States by utilizing the financial losses reported by the Federal Bureau of Investigation for property crimes and cybercrimes. Our research intends to help investors envision risk exposure in our portfolio, gauge investment risk based on their desired risk level, and hedge strategies for potential losses due to economic crashes. Underlying the index, we hedge the investments by issuing marketable European call and put options and providing risk budgets (diversifying risk to each type of crime). We find that real estate, ransomware, and government impersonation are the main risk contributors. We then evaluate the performance of our index to determine its resilience to economic crisis. The unemployment rate potentially demonstrates a high systemic risk on the portfolio compared to the economic factors used in this study. In conclusion, we provide a basis for the securitization of insurance risk from certain crimes that could forewarn investors to transfer their risk to capital market investors. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.03514&r= |
| By: | Collier, Stephen J.; Elliott, Rebecca; Lehtonen, Turo-kimmo |
| Abstract: | This special collection examines insurance as an increasingly central mechanism in shaping how the effects of climate change are transforming local economies and ways of life. The papers study a range of exemplary cases, ranging from agricultural micro-insurance in development policy and regional sovereign risk facilities in the Caribbean to public and private insurance in the United States. This framing essay situates these papers in a longer tradition of scholarship on the government of risk and security. It also describes three themes that run through the papers: the economization of climate change; the moral economy of risk and responsibility; and the plasticity of insurance as an abstract technology that may be taken up in various governmental assemblages, in the name of various political projects. |
| Keywords: | climate change; risk society; insurance; Taylor & Francis deal |
| JEL: | F3 G3 |
| Date: | 2021–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:110452&r= |
| By: | di Iasio, Giovanni; Kryczka, Dominika |
| Abstract: | We build a three-period model to investigate market failures in the market-based financial system. Institutional investors (IIs), such as insurance companies and pension funds, have liabilities offering guaranteed returns and operate under a risk-sensitive solvency constraint. They seek to allocate funds to asset managers (AMs) that provide diversification when investing in risky assets. At the interim date, AMs that run investment funds face investor redemptions and liquidate risky assets and/or deplete cash holdings, if available. Dealer banks can purchase risky assets, thus providing market liquidity. The latter ultimately determines equilibrium allocations. In the competitive equilibrium, AMs suffer from a pecuniary externality and hold inefficiently low amounts of cash. Asset fire sales increase the overall cost of meeting redemptions and depress risk-adjusted returns delivered by AMs to IIs, forcing the latter to de-risk. We show that a macroprudential approach to (i) the liquidity regulation of AMs and (ii) the solvency regulation of IIs can improve upon the competitive equilibrium allocations. JEL Classification: D62, G01, G23, G38 |
| Keywords: | insurance companies and pension funds, investment funds, market-based finance, market liquidity, regulation |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212545&r= |
| By: | Abhilash S Nair (Indian Institute of Management Kozhikode); Suresh Kalagnanam (Edwards School of Business, University of Saskatchewan) |
| Abstract: | The purpose of this study is to test whether CSR engagement provides insurance like effect even after the firm has faced an integrity questioning event. The impact of this integrity based negative event is measured as the media sentiment while reporting the event. Accordingly, we test whether prior CSR engagement prompts media to give the firm the benefit of doubt when it is accused of ‘grand corruption’. The study employs techniques of textual analysis combining various dictionaries and multiple media sources to estimate the sentiment score. Accordingly, we analyse 45,710 media reports, covering firms allegedly involved in ‘grand corruption’. The hypotheses are tested following standard panel data analysis techniques. The study finds no evidence of CSR providing an insurance like effect, particularly in the context of integrity-based negative events. Rather, the results suggest that the media may have viewed the CSR activity of sample firms as a public relations exercise and penalized them for being involved in grand corruption. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:iik:wpaper:431&r= |
| By: | Víctor González-Jiménez |
| Abstract: | I show that stochastic contracts are powerful motivational devices when agents distort probabilities. Stochastic contracts allow the principal to target probabilities that, when distorted by the agent, enhance the agent's motivation to exert effort on the delegated task. This novel source of incentives is absent in traditional contracts. A theoretical framework and an experiment demonstrate that stochastic contracts targeting small probabilities, and thus exposing the agent to a large degree of risk, generate higher performance levels than traditional contracting modalities. A result that contradicts the standard rationale that optimal contracts should feature a tradeoff between insurance and efficiency. This unintuitive finding is attributed to probability distortions caused by likelihood insensitivity - cognitive limitations that restrict the accurate evaluation of probabilities. |
| JEL: | C91 C92 J16 J24 |
| Date: | 2101–05 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:2101&r= |
| By: | Mika Akesaka; Peter Eibich; Chie Hanaoka; Hitoshi Shigeoka |
| Abstract: | The poor live paycheck to paycheck and are repeatedly exposed to strong cyclical income fluctuations. We investigate whether such income fluctuations affect risk preference among the poor. If risk preference temporarily changes around payday, optimal decisions made before payday may no longer be optimal afterward, which could reinforce poverty. By exploiting Social Security payday cycles in the US, we find that risk preference among the poor relying heavily on Social Security changes around payday. Rather than cognitive decline before payday, the deterioration of mental health and relative deprivation may play a role. We find similar evidence among the Japanese elderly. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1133&r= |
| By: | Mika Akesaka; Peter Eibich; Chie Hanaoka; Hitoshi Shigeoka |
| Abstract: | The poor live paycheck to paycheck and are repeatedly exposed to strong cyclical income fluctuations. We investigate whether such income fluctuations affect risk preference among the poor. If risk preference temporarily changes around payday, optimal decisions made before payday may no longer be optimal afterward, which could reinforce poverty. By exploiting Social Security payday cycles in the US, we find that risk preference among the poor relying heavily on Social Security changes around payday. Rather than cognitive decline before payday, the deterioration of mental health and relative deprivation may play a role. We find similar evidence among the Japanese elderly. |
| JEL: | D81 D91 I32 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28784&r= |