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on Insurance Economics |
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Issue of 2013‒09‒25
three papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Yarmukhamedov, Sherzod (VTI) |
| Abstract: | This paper uses discrete choice and count data models to analyze the effects of a tax on vehicle insurance levied in Sweden in 2007. The analysis is based on a large set of micro-level panel data on individual insurance holders at the largest insurance company in Sweden for the period 2006-2010. Two questions are addressed: How did the tax reform influence the choice of insurance coverage, and how did changes in coverage affect the incidence of claims? The results show that, on average, the tax reform increased the odds of choosing lower insurance coverage by 47 percent, and that the tax reform had more impact on older drivers. However, switching to lower coverage due to the tax reform has not resulted in significant changes in claim distributions, though the incidence of claims decreased by 20 percent for switchers aged 35-44 in the pre-reform period, indicating a mitigation of ex ante moral hazard in vehicle insurance. |
| Keywords: | Vehicle insurance; Moral hazard; Traffic safety; Tax reform |
| JEL: | C33 C54 D82 H20 L51 |
| Date: | 2013–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ctswps:2013_014&r=ias |
| By: | David L. Fuller; Marianna Kudlyak; Damba Lkhagvasuren |
| Abstract: | We construct a multi-sector search and matching model where the unemployed receive idiosyncratic productivity shocks that make working in certain sectors more productive than in the others. Agents must decide which sector to search in and face moving costs when leaving their current sector for another. In this environment, unemployment is associated with an additional risk: low future wages if mobility costs preclude search in the appropriate sector. This introduces a new role for unemployment benefits—productivity insurance while unemployed. Analytically, we characterize two competing effects of benefits on productivity, a moral hazard effect and a consumption effect. In a stylized quantitative analysis, we show that the consumption effect dominates, so that unemployment benefits increase per-worker productivity. We also analyze the welfare-maximizing benefit level and find that it decreases as moving costs increase. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:13-11&r=ias |
| By: | Jonathan E. Goldberg |
| Abstract: | I study the effects of credit tightening in an economy with uninsured idiosyncratic investment risk. In the model, entrepreneurs require an equity premium because collateral constraints limit insurance. After collateral constraints tighten, the equity premium and the riskiness of consumption rise and the risk-free interest rate falls. I show that, both immediately after the shock and in the long run, the equity premium and the riskiness of consumption increase more than they would if the risk-free rate were constant. Indeed, the long-run increase in the riskiness of consumption growth is purely a general-equilibrium effect: if the risk-free rate were constant (as in a small open economy), an endogenous decrease in risk-taking by entrepreneurs would, in the long run, completely offset the decrease in their ability to diversify. I also show that the credit shock leads to a decrease in aggregate capital if the elasticity of intertemporal substitution is sufficiently high. Finally, I show that, due to a general-equilibrium effect, there is no "overshooting" in the equity premium: in response to a permanent decrease in firms' ability to pledge their future income, the equity premium immediately jumps to its new steady-state level and remains constant thereafter, even as aggregate capital adjusts over time. However, if idiosyncratic uncertainty is sufficiently low, credit tightening has no short- or long-run effects on aggregate capital, the equity premium, or the riskiness of consumption. Thus my paper highlights how investment risk affects the economy's response to a credit crunch. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2013-47&r=ias |