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on Insurance Economics |
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Issue of 2013‒10‒25
eight papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Erwann Michel-Kerjan; Paul Raschky; Howard Kunreuther |
| Abstract: | Since the passage of the Terrorism Risk Insurance Act of 2002, corporate terrorism insurance is sold as a separate policy from commercial property coverage. In this paper, we determine whether companies differ in their demand for property and terrorism insurance. Using a unique dataset of insurance policies purchased by large U.S. firms, combined with financial information of the corporate clients and of the insurance provider, we apply a two-stage least squares (2SLS) approach to obtain consistent estimates of premium elasticity of corporate demand for property and terrorism coverage. Our findings suggest that both are rather price inelastic and that corporate demand for terrorism insurance is significantly more price inelastic than demand for property insurance. We further find a negative relation between the solvency ratios of both property and terrorism risk coverage, with a stronger effect on the latter, indicating that companies use their ability to self-insure as a substitute for market insurance. Our results are robust to the application of alternative estimators as well as changes in the econometric specifications. |
| JEL: | G22 H56 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19532&r=ias |
| By: | Antoine Leblois (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - AgroParisTech, Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Philippe Quirion (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - AgroParisTech); Benjamin Sultan (LOCEAN - Laboratoire d'Océanographie et du Climat : Expérimentations et Approches Numériques - Institut de recherche pour le développement [IRD] - INSU - CNRS : UMR7159 - Université Pierre et Marie Curie (UPMC) - Paris VI - Muséum National d'Histoire Naturelle (MNHN)) |
| Abstract: | In the Sudano-sahelian zone, which includes Northern Cameroon, the inter-annual variability of the rainy season is high and irrigation is scarce. As a conse- quence, bad rainy seasons have a detrimental impact on crop yield. In this paper, we assess the risk mitigation capacity of weather index-based insurance for cotton farmers. We compare the ability of various indices, mainly based on daily rainfall, to increase the expected utility of a representative risk-averse farmer. We first give a tractable definition of basis risk and use it to show that weather index-based insurance is associated with a large basis risk. It has thus limited potential for income smoothing, whatever the index or the utility function. Second, in accordance with the existing agronomical literature we find that the length of the cotton growing cycle, in days, is the best performing index considered. Third, we show that using observed cotton sowing dates to define the length of the grow- ing cycle significantly decreases the basis risk, compared to using simulated sowing dates. Finally we found that the gain of the weather-index based insurance is lower than that of hedging against cotton price fluctuations which is provided by the national cotton company. This casts doubts on the strategy of international institutions, which support weather-index insurances in cash crop sectors while pushing to liberalisation without recommending any price stabilization schemes. |
| Keywords: | Agriculture, weather, index-based insurance. |
| Date: | 2013–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:ciredw:hal-00796528&r=ias |
| By: | Emma Tominey (University of York) |
| Abstract: | Female labor supply can insure households against shocks to paternal employment. The paper estimates whether the female labor supply response to a paternal employment shock differs by eligibility to maternity employment protection. We exploit time-state variation in the implementation of unpaid maternity leave through the Family and Medical Leave Act (FMLA) in the US which increased employment protection from 0 to 12 weeks. We find that mothers eligible for FMLA speed up their return to work in response to a paternal shock, with a conditional probability of being in work 53% higher than in households with no paternal shock. In contrast, there was a negligible insurance response for mothers with no employment protection. |
| Keywords: | female labor supply, insurance, maternity leave |
| JEL: | I30 J13 J20 J64 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2013-16&r=ias |
| By: | Lalive, Rafael (University of Lausanne); Landais, Camille (London School of Economics); Zweimüller, Josef (University of Zurich) |
| Abstract: | This paper offers quasi experimental evidence of the existence of spillover effects of UI extensions using a unique program that extended unemployment benefits drastically for a subset of workers in selected regions of Austria. We use non-eligible unemployed in treated regions, and a difference-in-difference identification strategy to control for preexisting differences across treated and untreated regions. We uncover the presence of important spillover effects: in treated regions, as the search effort of treated workers plummets, the job finding probability of untreated workers increases, and their average unemployment duration and probability of long term unemployment decrease. These effects are the largest when the program intensity reaches its highest level, then decrease and disappear as the program is scaled down and finally interrupted. We use this evidence to assess the relevance of different assumptions on technology and the wage setting process in equilibrium search and matching models and discuss the policy implications of our results for the EUC extensions in the US. |
| Keywords: | unemployment insurance, benefit extension, market externality, macro effects |
| JEL: | J65 J21 J22 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7650&r=ias |
| By: | Hongzhong Zhang; Tim Leung; Olympia Hadjiliadis |
| Abstract: | This paper studies the stochastic modeling of market drawdown events and the fair valuation of insurance contracts based on drawdowns. We model the asset drawdown process as the current relative distance from the historical maximum of the asset value. We first consider a vanilla insurance contract whereby the protection buyer pays a constant premium over time to insure against a drawdown of a pre-specified level. This leads to the analysis of the conditional Laplace transform of the drawdown time, which will serve as the building block for drawdown insurance with early cancellation or drawup contingency. For the cancellable drawdown insurance, we derive the investor's optimal cancellation timing in terms of a two-sided first passage time of the underlying drawdown process. Our model can also be applied to insure against a drawdown by a defaultable stock. We provide analytic formulas for the fair premium and illustrate the impact of default risk. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1310.3860&r=ias |
| By: | Katherine Baicker; Amy Finkelstein; Jae Song; Sarah Taubman |
| Abstract: | In 2008, a group of uninsured low-income adults in Oregon was selected by lottery for the chance to apply for Medicaid. We use this randomized design and 2009 administrative data to evaluate the effect of Medicaid on labor market outcomes and participation in other social safety net programs. We find no significant effect of Medicaid on labor force participation or earnings: our 95 percent confidence intervals allow us to reject that Medicaid causes a decline in labor force participation of more than 4.4 percentage points, or an increase of more than 1.2 percentage points. We find that Medicaid increases receipt of food stamps, but has little, if any, impact on receipt of other government benefits, including SSDI. |
| JEL: | H51 H53 I13 J20 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19547&r=ias |
| By: | Casey B. Mulligan |
| Abstract: | Uncertainty and its composition can affect the demand for social insurance, and thereby the labor market. This paper shows that small to medium-sized increases in uncertainty or risk aversion are enough to recommend an expansion of the safety net that would be broadly similar to the actual safety net expansions, which significantly depressed the labor market. Labor market effects of uncertainty through investment and insurance channels are also examined with employer and employee labor wedges. |
| JEL: | D33 E24 I38 J22 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19553&r=ias |
| By: | Andree Ehlert (Leuphana University of Lueneburg, Germany); Dirk Oberschachtsiek (Leuphana University of Lueneburg, Germany); Stefan Prawda (Leuphana University of Lueneburg, Germany) |
| Abstract: | The major German health care reforms undertaken since the late 1990s resulted in the adoption of selective contracting mechanisms in a formerly sectorally separated health care system. These reforms marked the launch of managed care in Germany that is expected to yield both a higher quality of care and cost containment. We investigate if managed care had an in fluence on the structure of health care expenditure in Germany during the start-up phase of managed care from 2004 to 2008. We focus on pharmaceutical spending by statutory sickness funds (i.e. German law- enforced health insurance). We followed a macroeconomic evaluation approach based on a regional panel data set in contrast to previous research and were thus able to control for a comprehensive set of regional and demographic variables. We discuss alternative model specifications and include a range of sensitivity analyses. Our results suggest that in contrast to public perception the share of managed care contracts has a positive impact on pharmaceutical spending. |
| Keywords: | Managed care, Health care expenditure, Pharmaceutical expenditur, Panel data, German health care reform |
| JEL: | I11 I18 L14 O52 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:284&r=ias |