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on Insurance Economics |
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Issue of 2016‒10‒16
fifteen papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Jing Cai; Alain de Janvry; Elisabeth Sadoulet |
| Abstract: | Many new products presumed to be privately beneficial to the poor have a high price elasticity of demand and ultimately zero take-up rate at market price. This has led governments and donors to provide subsidies to increase take-up, with the concern of trying to limit their cost. In this study, we use data from a two-year field experiment in rural China to define the optimum subsidy scheme that can insure a given take-up for a new weather insurance for rice producers. We build a model that includes the forces that are known to be determinants of insurance demand, provide reduced form confirmation of their importance, validate the dynamic model with out-of-sample predictions, and use it to conduct policy simulations. Results show that the optimum current subsidy necessary to achieve a desired take-up rate depends on both past subsidy levels and past payout rates, implying that subsidy levels should vary locally year-to-year. |
| JEL: | D12 D83 G22 H20 O12 Q12 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22702&r=ias |
| By: | Alicia H. Munnell; Jean-Pierre Aubry |
| Abstract: | It is impossible to discuss municipal finance without considering the cost of pensions and other post-retirement employee benefits (OPEB), largest of which is retiree health insurance. These costs have received enormous press coverage, usually incorporating sweeping generalities about the burden of employee post-retirement benefits for the nation as a whole. Much is made of the bankruptcies in Vallejo, California (2008), Prichard, Alabama (2010), Central Falls, Rhode Island (2011), Stockton, California (2015), and Detroit, Michigan (2015). At the state level, the pension situation in Illinois, New Jersey, and Connecticut is often described as typical. No one mentions Delaware, Florida, Georgia, Tennessee, and North Carolina – states that have done a good job of providing reasonable benefits, paying their required contributions, and accumulating assets. The point is that the picture at the state and local level is extremely heterogeneous, so it is crucial to look at the numbers state by state and locality by locality. This paper provides a comprehensive accounting of pension and OPEB liabilities for state and local governments and the fiscal burden that they pose. The analysis includes plans serving more than 800 entities: 50 states, 178 counties, 173 major cities, and 415 school districts related to the sample of cities and counties. The analysis apportions the liabilities of state-administered cost-sharing plans to participating local governments for a more accurate picture of which governmental entity is actually responsible for funding pension and OPEB liabilities. The cost analysis calculates, separately, pension and OPEB costs as a percentage of own-source revenue for states, cities, and counties. It then combines pension and OPEB costs to obtain the overall burden of these programs. Finally, it adds debt service costs to provide a comprehensive picture of government revenue commitments to long-term liabilities. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2016-11&r=ias |
| By: | Shantanu Bagchi (Towson University) |
| Abstract: | I examine if the positive correlation between wealth and survivorship has any implications for the progressivity of Social Security’s current benefit-earnings rule. Using a general-equilibrium macroeconomic model calibrated to the U.S. economy, I show that the optimal benefit-earnings link for Social Security is largely insensitive to wealth-dependent mortality risk. This is because while a more progressive benefit-earnings rule provides increased insurance for households with relatively unfavorable earnings histories, and therefore lower savings and survivorship, their relatively high mortality risk heavily discounts the utility from old-age consumption. I find that these two effects roughly offset each other, yielding nearly identical optimal benefit-earnings rules both with and without differential mortality. |
| Keywords: | differential mortality, Social Security, mortality risk, labor income risk, incomplete markets, social insurance; general equilibrium |
| JEL: | E21 E62 H55 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:upj:weupjo:16-263&r=ias |
| By: | Christopher J. O'Leary (W.E. Upjohn Institute for Employment Research); Burt S. Barnow (George Washington University) |
| Abstract: | The federal-state system of unemployment insurance (UI) in the United States was established by the Social Security Act of 1935 during the Great Depression. Under the program, states provide temporary partial wage replacement to involuntarily unemployed workers with significant labor force attachment. The federal government induced states to establish UI programs through two means: 1) a uniform federal tax imposed on employer payrolls, with a 90 percent reduction granted in states operating approved UI programs, and 2) grants to states to administer their programs. The system has evolved into a collection of separate state programs adapted to different regional, economic, and cultural contexts that all meet the same standards. This paper reviews state practices concerning applicant eligibility, benefit generosity, and benefit financing, with the aim of revealing lessons for a possible European unemployment benefit system (EUBS). We examine areas of federal leadership, explicit federal-state cooperation, and state innovation. While the U.S. system offers some good ideas for setting up an EUBS, there are also lessons in some shortcomings of the U.S. experience. We identify areas of risk for individual and institutional moral hazard in a multi-tiered UI system, and give examples of monitoring methods and incentives to ameliorate such risks. We suggest approaches for gradual system development, encouraging lower-tier behavior, benefit financing, and responses to regional and system-wide crises. |
| Keywords: | unemployment insurance, European unemployment benefit system, multi-tiered system, moral hazard, incentives, public finance |
| JEL: | J65 H81 H87 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:upj:weupjo:16-264&r=ias |
| By: | Sokolovska, Olena |
| Abstract: | The paper provides analysis of conceptual background of the trade credit insurance in the world. We analyzed briefly the problems, arising in insurance markets due to asymmetric information, such as adverse selection and moral hazard problems. Also we discuss the main stages of development of trade credit insurance in countries worldwide. Using comparative and graphical analysis we provide a brief evaluation of the dynamics of claims and recoveries for both short-term and long and medium term trade credit insurance in the world. For this purpose we used data on claims paid and recoveries for the period of 2005-2015. We found that the claims related to the commercial risk for medium and long trade credits in recent years exceed the recoveries, while with the political risk the reverse trend holds. |
| Keywords: | Trade credit insurance, export credit, international trade, international finance |
| JEL: | F10 F39 G22 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74303&r=ias |
| By: | Krueger, Dirk; Ludwig, Alexander |
| Abstract: | In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers: subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits. We also argue that a full characterization of the transition path is crucial for policy evaluation. We find that optimal education policies are always characterized by generous tuition subsidies, but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium. |
| Keywords: | Progressive Taxation,Education Subsidy,Transitional Dynamics |
| JEL: | E62 H21 H24 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:110r&r=ias |
| By: | Pierre Martinon (Commands - Control, Optimization, Models, Methods and Applications for Nonlinear Dynamical Systems - CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique - Inria Saclay - Ile de France - Inria - Institut National de Recherche en Informatique et en Automatique - ENSTA ParisTech UMA - Unité de Mathématiques Appliquées - Univ. Paris-Saclay, ENSTA ParisTech - École Nationale Supérieure de Techniques Avancées - Univ. Paris-Saclay, ENSTA ParisTech - École Nationale Supérieure de Techniques Avancées - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique); Pierre Picard (Ecole Polytechnique [Palaiseau] - Ecole Polytechnique); Anasuya Raj (Ecole Polytechnique [Palaiseau] - Ecole Polytechnique) |
| Abstract: | We analyze the design of optimal medical insurance under ex post moral hazard, i.e., when illness severity cannot be observed by insurers and policyholders decide on their health expenditures. We characterize the trade-o§ between ex ante risk sharing and ex post incentive compatibility, in an optimal revelation mechanism under hidden information and risk aversion. We establish that the optimal contract provides partial insurance at the margin, with a deductible when insurersí rates are a§ected by a positive loading, and that it may also include an upper limit on coverage. We show that the potential to audit the health state leads to an upper limit on out-of-pocket expenses. |
| Keywords: | background risk, optimal control,health insurance, ex post moral hazard, audit |
| Date: | 2016–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01348551&r=ias |
| By: | Crystal Blyler; Melissa Azur; Bonnie O'Day; Priyanka Anand; Allison Barrett; Kavita Choudhry; Kara Contreary; Sarah Croake; Molly Crofton; Noelle Denny-Brown; Brian Johnston; Jasmine Little; Jennifer Lyons; Brenda Natzke; Stephanie Peterson; Max Rubinstein; Allison Siegwarth; James Woerheide; Kara Zivin |
| Abstract: | Created by the Affordable Care Act in 2010 and launched by the Centers for Medicare & Medicaid Services in 2012, the Medicaid Emergency Psychiatric Services Demonstration tests the effects of waiving the “institutions for mental disease†(IMD) exclusion for Medicaid beneficiaries with emergency psychiatric conditions who were admitted to 28 private IMDs in 11 states and the District of Columbia. |
| Keywords: | Medicaid, emergency psychiatry, institution for mental diseases, IMD exclusion, inpatient care, psychiatric hospital |
| JEL: | I J |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:68136f5dda6f4dfe90a6302023771837&r=ias |
| By: | Joan Costa-Font; Sergi Jiménez-Martín; Cristina Vilaplana |
| Abstract: | The expansion of long-term care (LTC) coverage may improve health system efficiency by reducing hospitalisations (bed-blocking), and pave the way for the implementation of health and social care coordination plans. We draw upon the quasi-experimental evidence from the main expansion of long term care increase subsidisation in Spain in 2007 to examine the causal effect of the expansion of LTC subsidisation and coordination on hospitalisations (both on the internal and external margin) and the hospital length of stay. In addition, we examine the 2012 austerity budget cuts that reduced the subsidy. We find robust evidence of a reduction in hospitalisations and the length of stay after the expansion of LTC subsidisation. However, the reduction in hospitalisations is heterogeneous to the existence of health and social care coordination plans and type of subsidy. Overall, we estimate savings related to hospitalisations of up to 11% of total hospital costs. Consistently, subsidy reduction is found to attenuate bed-blocking gains. |
| Keywords: | hospitalisation, long-term care reform, Spain, bed-blocking, hurdle Poisson model. |
| JEL: | I18 J14 H53 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1535&r=ias |
| By: | Arnaud Goussebaïle (Ecole Polytechnique [Palaiseau] - Ecole Polytechnique) |
| Abstract: | Cities located in regions prone to natural hazards such as flooding are not uniformly exposed to risks because of sub-city local characteristics (e.g. topography). Spatial heterogeneity thus raises the issue of how these cities have spread and should continue to develop. The current paper investigates these questions by using an urban model in which each location is characterized by a transport cost to the city center and a risk exposure. Riskier areas are developed nearer to the city center than further away. Investment in building resilience leads to more compact cities. At a given distance to the city center, riskier areas have lower land prices and get lower household density and higher building resilience. Actuarially fair insurance generates optimal density and resilience. An increase of insurance subsidization leads to an increase of density in the riskiest areas and a general decrease of resilience. In this case density restrictions and building codes have to be enforced to limit risk over-exposure. |
| Keywords: | resilience, insurance,urbanization, natural disaster risks |
| Date: | 2016–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01358734&r=ias |
| By: | Charles W. Calomiris; Matthew S. Jaremski |
| Abstract: | Deposit insurance reduces liquidity risk but it also can increase insolvency risk by encouraging reckless behavior. A handful of U.S. states installed deposit insurance laws before the creation of the FDIC in 1933, and those laws only applied to some depository institutions within those states. These experiments present a unique testing ground for investigating the effect of deposit insurance. We show that deposit insurance increased risk by removing market discipline that had been constraining erstwhile uninsured banks. Taking advantages of the rising world agricultural prices during World War I, insured banks increased their insolvency risk, and competed aggressively for the deposits of uninsured banks operating nearby. When prices fell after the War, the insured systems collapsed and suffered especially high losses. |
| JEL: | G21 G28 N22 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22692&r=ias |
| By: | Augustin, Patrick; Sokolovski, Valeri; Subrahmanyam, Marti G. |
| Abstract: | We provide a comprehensive analysis of the determinants of trading in the sovereign credit default swaps (CDS) market, using weekly data for single-name sovereign CDS from October 2008 to September 2015. We describe the anatomy of the sovereign CDS market, derive a law of motion for gross positions and their components, and identify the key factors that drive the cross-sectional and time-series properties of trading volume and net notional amounts outstanding. While a single principal component accounts for 54 percent of the variation in sovereign CDS spreads, the largest common factor explains only 7 percent of the variation in sovereign CDS net notional amounts outstanding. Moreover, unlike for CDS spreads, common global factors explain very little of the variation in sovereign CDS trading and net notional amounts outstanding, suggesting that it is driven primarily by idiosyncratic country risk. We analyze several local and regional channels that may explain the trading in sovereign CDS: (a) country-specific credit risk shocks, including changes in a country's credit rating and related outlook changes, (b) the announcement and issuance of domestic and international debt, (c) macroeconomic sentiment derived from conventional and unconventional monetary policy, macro-economic news and shocks, and (d) regulatory channels, such as changes in bank capital adequacy requirements. All our findings suggest that sovereign CDS are more likely used for hedging than for speculative purposes. |
| Keywords: | Banking Regulation,Basel III,Contagion,Credit Default Swaps,OTC,Sovereign Credit Risk,Systemic Risk |
| JEL: | C1 C5 C68 G12 G13 G15 F34 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:540&r=ias |
| By: | Marta Lachowska (W.E. Upjohn Institute for Employment Research); Merve Meral (University of Massachusetts - Dartmouth); Stephen A. Woodbury (W.E. Upjohn Institute for Employment Research and Michigan State University) |
| Keywords: | Unemployment insurance, Work test, Random-assignment experiment, Pre-treatment outcome tests, Reemployment policy, Long-term evaluation of public policy, Administrative data |
| JEL: | C21 C93 I38 J18 J38 J64 J65 J68 |
| URL: | http://d.repec.org/n?u=RePEc:upj:weupjo:ml-mm-sw-16&r=ias |
| By: | Pierre Picard (Ecole Polytechnique [Palaiseau] - Ecole Polytechnique) |
| Abstract: | In the linear coinsurance problem, examined Örst by Mossin (1968), a higher risk aversion with respect to wealth in the sense of ArrowPratt implies a higher optimal coinsurance rate. We show that this property does not hold for health insurance under ex post moral hazard, i.e., when illness severity cannot be observed by insurers and policyholders decide on their health expenditures. The optimal coinsurance rate trades o§ a risk sharing e§ect and an incentive e§ect, both related to risk aversion. |
| Keywords: | Health insurance, ex post moral hazard, coinsurance |
| Date: | 2016–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01353597&r=ias |
| By: | Crystal Blyler; Melissa Azur; Bonnie O'Day; Priyanka Anand; Allison Barrett; Kavita Choudhry; Kara Contreary; Sarah Croake; Molly Crofton; Noelle Denny-Brown; Brian Johnston; Jasmine Little; Jennifer Lyons; Brenda Natzke; Stephanie Peterson; Max Rubinstein; Allison Siegwarth; James Woerheide; Kara Zivin |
| Abstract: | This is an executive summary for the report summarizing the findings from the Medicaid Emergency Psychiatric Services Demonstration (MEPD) Evaluation: Volume I and Volume II. |
| Keywords: | Medicaid, emergency psychiatry, institution for mental diseases, IMD exclusion, inpatient care, psychiatric hospital |
| JEL: | I J |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:9e00fc275489478a8ac81a1c3d6ed4c4&r=ias |