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on Insurance Economics |
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Issue of 2011‒02‒05
thirteen papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Mariacristina De Nardi (Federal Reserve Bank of Chicago and NBER); Eric French (Federal Reserve Bank of Chicago); John Bailey Jones (University at Albany, SUNY) |
| Abstract: | We study a model in which retired single people optimally choose consumption, medical spending and saving while facing uncertainty about their health, lifespan and medical needs. This uncertainty is partially offset by insurance provided by the government and private institutions. We first show how well the model matches important features of the data and we analyze the degree of insurance provided by current programs. We then analyze the effects of some reforms, meant to capture changes in Medicaid and Medicare, on savings and medical expenditures. |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp236&r=ias |
| By: | Perry Singleton |
| Abstract: | The onset of a work-limiting disability coincides with an immediate decline in earnings with little recovery. This study examines whether this relationship is attributable to the labor disincentives of disability insurance. The data come from the Survey of Income and Program Participation linked to administrative data from the Social Security Administration. The analysis suggests that disability insurance accounts for little of the initial drop in earnings at the time of disability onset, but its effect may increase as time since disability onset elapses. The results highlight the advantages of immediate, though temporary disability benefits. |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2010-18&r=ias |
| By: | Anat Bracha; Donald J. Brown |
| Abstract: | Optimism bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk, such as expected utility theory and prospect theory. Hence, to explain the evidence suggesting that agents are optimistically biased, we propose an alternative model of risky choice, affective decision making, where decision weights—which we label affective or perceived risk—are endogenized. Affective decision making (ADM) is a strategic model of choice under risk where we posit two cognitive processes—the "rational" and the "emotional" process. The two processes interact in a simultaneous-move intrapersonal potential game, and observed choice is the result of a pure Nash equilibrium strategy in this game. We show that regular ADM potential games have an odd number of locally unique pure strategy Nash equilibria, and demonstrate this finding for ADM in insurance markets. We prove that ADM potential games are refutable by axiomatizing the ADM potential maximizers. |
| Keywords: | Insurance |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:10-16&r=ias |
| By: | Torben M. Andersen (School of Economics and Management, Aarhus University, Denmark) |
| Abstract: | The direct effects as well as the policy responses to the financial crisis have raised the issue whether individuals carry too large costs and consequences of changes which are beyond their control and influence. Collective risk sharing is considered insufficient and in need of expansion. The policy focus is thus shifting from incentives to insurance, and it is debated how welfare state arrangements can trade-off efficiency and equity concerns. While this trade-off is core to economics, most policy analyses and advice focus only on the incentive or distortion side. This paper looks at the insurance side based on the fact that it is impossible to separate redistribution from collective risk sharing. It is argued that insurance effects are crucial for behavioural responses and hence the relation between efficiency and equity. However, two factors limit the scope for collective risk sharing, namely, adverse incentive effects (common pool) and the nature of shocks. It is argued that the former depends crucially on policy design, and in particular the extent to which eligibility criteria in the social safety net have an active focus on job search and employment. Collective risk sharing schemes are vulnerable to persistent shocks, and it is an important question whether welfare arrangements themselves are a source of more inertia or persistence in the adjustment process. It is argued that there is no evidence that this is the case, but nonetheless persistent shocks pose a serious challenge to an extended welfare state. |
| Keywords: | Risk, insurance, common pool, shocks, persistence |
| JEL: | H1 E62 F22 P1 |
| Date: | 2011–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2011-02&r=ias |
| By: | Norma B. Coe; Kelly Haverstick |
| Abstract: | The increase in the full retirement age in the Social Security program provides exogenous variation in the generosity in the Social Security Disability Insurance (SSDI) program, based only on birth year. We exploit this variation to estimate how responsive SSDI applications are to the financial incentive to apply. We find that a 1-percentage-point decrease in the retirement-to-disability benefit ratio leads to a 0.25-percentage-point increase in the SSDI application rate for the sample, which represents an 8-percent increase in applications per two years. When weighted to account for sampling design, we estimate that this change in the financial incentive accounted for about 5 percent of the SSDI applications in 2009. However, we do not find a corresponding increase in SSDI receipt based on the financial incentives. In addition, we find little difference in the covariates for individuals who eventually receive SSDI, suggesting that the increase in applications may increase the administrative costs of the SSDI program, but should not have a dramatic impact on the long-term financial solvency of the program. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2010-20&r=ias |
| By: | Götze, Ralf |
| Abstract: | This paper deals with the changing role of the state in the Dutch healthcare system. At the eve of the first oil crisis the Netherlands had a relatively compound healthcare system combining several characteristics of the three Western healthcare system types: National Health Service, social health insurance system, and private health insurance system. Comparative case-studies on OECD countries indicate a hybridization trend from relatively pure to mixed healthcare systems during the era of 'permanent austerity'. The adequate question is therefore, how and why the role of the state has changed in the relatively mixed Dutch social health insurance system. In order to approach this research question in a systematic way, we distinguish between three dimensions of the healthcare system: regulation, financing, and service provision. In the regulation dimension we observe an increasing state influence on coverage by an incremental socialization of the private sector. This progress culminated in 2006 in the merger of sickness funds and private health insurances into a functional social health insurance under private law. Since the early 1980s the state also directly intervened in the corporatist bargaining of providers and insurers in order to contain costs and regain global competiveness. At the beginning of the new millennium tight budgets resulting in long waiting lists were no longer accepted against the background of a booming economy. Instead, the role of competition increased through new opportunities and incentives for selective contracting between insurers and providers. Therefore, we observe a shift from corporatist self-regulation towards state-regulated market competition within the institutional framework of a social health insurance system. This ongoing reform process towards a welfare market for medical goods was supported by the main political parties on the left and right in order to enhance efficiency and safeguard solidarity. -- Gegenstand dieses Papiers ist die veränderte Rolle des Staates im niederländischen Gesundheitssystem. Vor der ersten Ölkrise zeichneten sich die Niederlande durch ein vergleichsweise gemischtes Gesundheitssystem aus, das einzelne Elemente der drei westlichen Gesundheitssystemtypen beinhaltete: Nationaler Gesundheitsdienst, Sozialversicherungssystem und Privatversicherungssystem. Vergleichende politikwissenschaftliche Studien zeigen einen Hybridisierungstrend in der OECD-Welt von eher idealtypischen zu hybriden Gesundheitssystemen seit dem Ende des Goldenen Zeitalters der Wohlfahrtstaaten in den 1970er Jahren. Daraus ergibt sich die Frage, wie sich die Rolle des Staates im bereits zum Ausgangspunkt vergleichsweise gemischten niederländischen Sozialversicherungssystem entwickelt. Zur systematischen Beantwortung dieser Frage wird in diesem Papier zwischen drei Dimensionen eines Gesundheitssystems unterschieden: Regulierung, Finanzierung und Leistungserbringung. In der Regulierung zeigt sich ein deutlicher Anstieg des Staatseinflusses bei der Absicherung durch eine inkrementelle Sozialisierung der Privatversicherung. Dieser Prozess fand 2006 mit der Verschmelzung der gesetzlichen und privaten Krankenversicherung zu einer funktionalen Sozialversicherung auf privater Basis seinen vorläufigen Höhepunkt. Auch in der Interaktion zwischen Versicherern und Leistungserbringern baute der Staat seit Anfang der 1980er Jahre stetig seinen direkten Einfluss aus, um mit einer strikten Kostendämpfung die internationale Wettbewerbsfähigkeit der Niederlande zu verbessern. Zur Jahrtausendwende war die restriktive staatliche Budgetplanung allerdings angesichts steigender Wartezeiten nicht mehr vermittelbar, wodurch verstärkt Möglichkeiten und Anreize für mehr Vertragswettbewerb geschaffen wurden. Damit wurde die für Sozialversicherungssysteme typische korporatistische Selbstverwaltung schrittweise unterhöhlt und durch Elemente eines staatlich regulierten Wettbewerbs ersetzt. Diese sich weiterhin im Prozess befindliche Hinwendung zu einem Wohlfahrtsmarkt für Gesundheitsgüter wurde von den relevanten linken und bürgerlichen Parteien in unterschiedlichen Koalitionen in der Überzeugung mitgetragen, Effizienzpotenziale zu heben und die Solidarität nicht zu gefährden. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:sfb597:141&r=ias |
| By: | Lamont K. Black; Chenghuan Sean Chu; Andrew Cohen; Joseph B. Nichols |
| Abstract: | Differences in the organizational structure of CMBS loan originators may reflect differences in the incentives they face for underwriting risky loans. We treat an originator's type--that is, commercial bank, investment bank, insurance company, finance company, conduit lender, or foreign-owned entity--as a proxy for incentives related to warehousing risk, balance sheet lending, and regulatory constraints. After controlling for observable credit characteristics of over 30,000 loans securitized into CMBS after 1999, we find considerable differences in loan performance across originator types. The results suggest that moral hazard--captured by lack of warehousing risk-negatively affected the quality of loans underwritten by conduit lenders. On the other hand, despite opportunities for adverse selection, balance sheet lenders--commercial banks, insurance companies and finance companies--actually underwrote higher quality loans. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2011-05&r=ias |
| By: | Krueger, Alan B. (Princeton University); Mueller, Andreas (IIES, Stockholm University) |
| Abstract: | This paper presents findings from a survey of 6,025 unemployed workers who were interviewed every week for up to 24 weeks in the fall of 2009 and spring of 2010. Our main findings are: (1) the amount of time devoted to job search declines sharply over the spell of unemployment; (2) the self-reported reservation wage predicts whether a job offer is accepted or rejected; (3) the reservation wage is remarkably stable over the course of unemployment for most workers, with the notable exception of workers who are over age 50 and those who had nontrivial savings at the start of the study; (4) many workers who seek full-time work will accept a part-time job that offers a wage below their reservation wage; and (5) the amount of time devoted to job search and the reservation wage help predict early exits from Unemployment Insurance (UI). |
| Keywords: | unemployment insurance, job search, reservation wage |
| JEL: | J64 J65 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5450&r=ias |
| By: | John Bound (University of Michigan and National Bureau of Economic Research); Stephan Lindner (University of Michigan); Timothy Waidmann (Urban Institute) |
| Abstract: | Over the last 25 years the Social Security Disability Insurance Program (DI) has grown dramatically. During the same period of time employment rates for men with work limitations showed substantial declines in both absolute and relative terms. While the timing of these trends suggests that the expansion of DI was a major contributor to employment decline and raises questions about the targeting of disability benefits, studies using denied applicants suggest a more modest role for DI expansion. In order to reconcile these findings, we decompose total employment changes into population and employment changes for three categories: DI beneficiaries, denied applicants and non-applicants. Our results show that during the early 1990s, the growth in DI can fully explain the employment decline for men only under an extreme assumption about the employment potential of beneficiaries. For the period after the mid-1990s, we find little role for the DI program in explaining the continuing employment decline for men with work limitations. |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp239&r=ias |
| By: | Torben M. Andersen (School of Economics and Management, Aarhus University, Denmark) |
| Abstract: | The Scandinavian countries have achieved both a high level of living standard (measured by e.g. average income) and an egalitarian outcome (measured by e.g. income inequality) despite a very large public sector and thus a large tax burden (about 50 % of GDP). The Scandinavian cluster thus poses a challenge to the standard view on the tradeoff between efficiency and equity. How come that the Scandinavian countries have been able to achieve high equality without much sacrifice of efficiency in terms of income? This paper addresses this question with the outset in recent work stressing the insurance aspect of the welfare state. A broad interpretation of the Scandinavian welfare model in terms of social insurance or common pool aspects is given. The effects of social insurance are discussed and the potential incentive problems arising in a common pool arrangement are argued to be mitigated by a number of counteracting mechanisms. Issues in policy design and the political economy of the welfare state are also discussed. |
| Keywords: | Risk-sharing, incentives, common-pool problems, political support |
| JEL: | H1 E62 F22 P1 |
| Date: | 2011–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2011-01&r=ias |
| By: | Nicole Maestas (RAND); Kathleen Mullen (RAND); Alexander Strand (Social Security Administration) |
| Abstract: | We present the first estimates of the causal effect of SSDI receipt on the labor supply generalizable to the entire population of program entrants in the present day system. We take advantage of a unique workload management database to match Social Security Disability Insurance (SSDI) applicants to disability examiners, and use natural variation in examiners’ allowance rates to estimate the labor supply effects of SSDI. Because applicants are randomly assigned to examiners (conditional on observable characteristics), examiner-specific allowance rates can be used to instrument for the allowance decision in a labor supply equation contrasting denied vs. allowed applicants. We find that the labor force participation rate of the marginal entrant would be on average 21 percentage points greater in the absence of SSDI benefit receipt. His or her likelihood of engaging in substantial gainful activity as defined by the SSDI program would be on average 13 percentage points higher, and he or she would earn $1,600 to $2,600 more per year on average in the absence of SSDI benefit receipt. The marginal entrant is likely to have a mental impairment, be young, and have low pre-onset earnings. Importantly, the disincentive effect varies across individuals with impairments of different degrees of unobservable severity, ranging from a low of 10 percentage points for those with more severe impairments to a high of 60 percentage points for entrants with relatively less severe impairments. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp241&r=ias |
| By: | Ph. Barbe (CNRS); W. P. McCormick (UGA) |
| Abstract: | Motivated by applications to insurance mathematics, we prove some heavy-traffic limit theorems for process which encompass the fractionally integrated random walk as well as some FARIMA processes, when the innovations are in the domain of attraction of a nonGaussian stable distribution. |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1101.4437&r=ias |
| By: | Sevinc Cukurova (Universidad Carlos III de Madrid); Jose M. Marin (IMDEA Social Sciences Institute) |
| Abstract: | In this paper we study the drawdown status of hedge funds as a hedge fund characteristic related to performance. A hedge fund's drawdown status is the decile to which the fund belongs in the industry's drawdown distribution (at a given point in time). Economic reasoning suggests that both the current level and the past evolution of a fund's drawdown status are informative of key fund aspects, including the manager's talent, as well as fund investors' assessment of the fund, and, hence, are predictive of future performance. The analysis delivers four completely new insights on hedge funds. First, the presence of insurance selling (shorting deep out-of-the-money puts) in the industry is large enough to make portfolios of low drawdown funds weak performers, in general, and bad performers in times of turmoil. Second, the market operates a Darwinian selection process according to which funds running large drawdowns for a prolonged period of time (survivers) are managed by truly talented traders who deliver outstanding future performance. Third, a completely new dimension of risk arises as a distinctive feature of hedge funds: risk conditional on survival is tantamount to outstanding performance. Fourth, drawdown status analysis raises serious concerns about the role played by other hedge fund characteristics {such as total delta{ on fund performance and casts doubts on the validity of some performance evaluation measures {such as the Calmar and Sterling ratios{ that are widely used in practice. |
| Keywords: | drawdowns; hedge funds; fund characteristics; return predictability; darwinian selection; insurance sellers; survival |
| JEL: | G11 G12 G19 G22 G23 |
| Date: | 2011–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:imd:wpaper:wp2011-04&r=ias |