1,721,207 research outputs found
Money Illusion Under Test
Full text linkMuch progress has been made in recent years in developing and applying a direct measure of utility using survey questions on satisfaction with income and with life in general. In this paper we apply this new type of measurement to the study of money illusion. Using data from the German Socio-Economic Panel for the years 1993 to 2003, we cannot reject the hypothesis of no money illusion.North-South, cost-of-living, subjective well-being, fixed effects
Deductible or Co-Insurance: Which is the Better Insurance Contract under Adverse Selection?
Full text linkThe standard solution to adverse selection is the separating equilibrium introduced by Rothschild and Stiglitz. Usually, the Rothschild-Stiglitz argument is developed in a model that allows for two states of the world only. In this paper adverse selection is dis-cussed for continuous loss distributions. This gives rise to the new problem of finding the proper form of an insurance contract to impose partial insurance of the low risks. This paper contributes to the discussion on optimal insurance. It analyzes two basic forms of insurance contracts: A contract with a deductible and a contract imposing a positive co-insurance rate. Since high risks can always self-reveal themselves as high risks and buy the optimal insurance contract at high risks’ premiums the Pareto-superior insurance contract is the one that leaves the low risks with higher expected utility while deterring high risks from joining the contract that is designed for low risks. The deductible contract turns out to be superior if premiums contain a sufficiently high loading.Insurance, Adverse Selection, Deductible, Co-Insurance
Multiple Losses, Ex-Ante Moral Hazard, and the Non-Optimality of the Standard Insurance Contract
Full text linkUnder certain conditions the optimal insurance policy will offer full coverage above a deductible, as Arrow and others have shown long time ago. Interestingly, the same design of insurance policies applies in case of a single loss and ex-ante moral hazard. However, many insurance policies provide coverage against a variety of losses and the possibilities for the insured to affect the probabilities of each possible loss might be substantially different. The optimal design of a insurance contract providing coverage against different losses therefore should generally differ from the standard form under moral hazard. The paper concentrates on the conditions under which the standard insurance contract holds under moral hazard and more than one loss. It gives some evidence that many insurance contracts should be split up. The main result is, that the relative changes of probabilities due to precautious activities are decisive. On the other hand, under moral hazard it is rarely ever optimal to combine two losses in one insurance contract prescribing only a single deductible for both losses if both losses can occur simultaneously.insurance, multiple losses,moral hazard
Asymmetric Vertical Integration
Full text linkWe examine vertical backward integration in a reducedform model of successive oligopolies. Our key findings are: (i) There may be asymmetric equilibria where some firms integrate and others remain separated, even if firms are symmetric initially; (ii) Efficient firms are more likely to integrate vertically. As a result, integrated firms also tend to have a large market share. The driving force behind these findings are demand/mark-up complementarities in the product market. We also identify countervailing forces resulting from strong vertical foreclosure, upstream sales and endogenous acquisition costs.successive oligopolies, vertical integration, effciency, foreclosure
Optimal Insurance Contracts without the Non-Negativity Constraint on Indemnities Revisited
Full text linkIn the literature on optimal indemnity schedules, indemnities are usually restricted to be non-negative. Gollier (1987) shows that this constraint might well bind: insured could get higher expected utility if insurance contracts would allow payments from the insured to the insurer at some losses. However, due to the insurers’ cost function Gollier supposes, the optimal insurance contract he derives underestimates the relevance of the non-negativity constraint on indemnities. This paper extends Gollier’s findings by allowing for negative indemnity payments for a broader class of insurers’ cost functions.Insurance, Indemnity, Deductible, Co-Insurance
Correlated Risks: A Conflict of Interest Between Insurers and Consumers and Its Resolution
Full text linkThis contribution starts out by noting a conflict of interest between consumers and insurers. Consumers face positive correlation in their assets (health, wealth, wisdom, i.e. skills), causing them to demand a great deal of insurance coverage. Insurers on the other hand eschew positively correlated risks. It can be shown that insurance contributes to a reduction of their asset volatility only if unexpected deviations of payments from expected value correlate negatively across lines of insurance. Analyzing deviations from trend in aggregate insurance payments, one finds the following for the United States and Switzerland. Private U.S. but not Swiss insurance has a hedging effect for consumers, while both social insurance schemes expose consumers to excess asset volatility. In the insurance systems of both countries, the private component fails to offset deviations in the social component (and vice versa). As to the supply of insurance, cointegration analysis indicates the absence of common trends. Therefore, insurance companies could offer combined policies to the benefit of consumers, hedging their underwriting risks both domestically and internationally.Insurance, Portfolio Theory, International Diversification, Combined Contracts
How Much Internalization of Nuclear Risk Through Liability Insurance?
Full text linkAn important source of conflict surrounding nuclear energy is that with a very small probability, a large-scale nuclear accident may occur. One way to internalize the financial risks associated with such an accident is through mandatory liability insurance. This paper presents estimates of the willingness to pay for increased financial security provided by an extension of coverage, based on the `stated choice' approach. A Swiss citizen with median characteristics may be willing to pay 0.08 cents per kwh to increase coverage beyond the current CHF 0.7 bn. (US 2.7 bn.). An extension of nuclear liability insurance coverage therefore may be effciency-enhancing.risk, nuclear energy, liability insurance, internalization
On The Role of Access Charges Under Network Competition
Full text linkWe aim to clarify the role of access charges under two-way network competition, employing a reduced-form approach. Retaining the key features of specific network competition models but imposing less structure, we analyze the impact of changes in access charges on linear and non-linear retail prices. We derive su.cient conditions for usage fees to be increasing (and subscriber charges to be decreasing) in access charges. These conditions are shown to be satisfied only under rather restrictive assumptions on the demand for calls, suggesting that implementing collusion by inflating access charges is likely to be nonfeasible.network competition, two-way access, collusion, nonlinear retail prices
The Purpose and Limits of Social Health Insurance
Full text linkThis contribution seeks to answer two related questions. First, what is the purpose of social health insurance? Or put in slightly different terms, what are the reasons for social (or public) health insurance to exist, even to dominate private health insurance in most developed countries? And second, what are the limits of social health insurance? Can one say that there is "too much" social health insurance in the following two senses: Should the balance be shifted towards the private alternative? And is the degree of coverage excessive?social health insurance, private health insurance, insurance coverage
Validity of Discrete-Choice Experiments - Evidence for Health Risk Reduction
Full text linkThere is growing interest in discrete-choice experiments (DCE) as a method to elicit consumers' preferences in the health care sector. Increasingly this method is used to determine willingness-to-pay (WTP) for health-related goods. However, its external validity in the health care domain has not been investigated until today. This paper examines the external validity of DCE concerning the reduction of a health risk. Convergent validity is examined by comparing the value of a statistical life with other preference elicitation techniques, such as revealed preference. Criterion validity is shown by comparing WTP values derived from stated choices in the experiment with those derived from actual choices made by the same individuals. Both tests provide strong evidence in favor of external validity of the DCE method.Choice Experiments (DCE), Willingness-to-Pay (WTP), Validity, Risk Reduction, Hip Protectors
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