HETEROGENEITY IN STATE‐DEPENDENT UTILITY: EVIDENCE FROM STRATEGIC SURVEYS

A standard result of life‐cycle models under uncertainty is that optimizing individuals equate the expected marginal utility of consumption across states of the world if insurance is available at actuarially fair rates. A small empirical literature has suggested that the marginal utility of consumption is lower in less healthy states. We use a novel survey‐based measure to document significant heterogeneity in health‐state dependence across individuals largely orthogonal to standard controls. We further show that individuals value unhealthy states of the world more when facing work‐limiting disabilities than when facing disabilities requiring long‐term care, and when facing physical rather than mental disabilities. (JEL D12, I10)     

HEALTH CARE, INSURANCE, AND THE CONTRACT CHOICE EFFECT

This article explores the interdependence between the individual consumer's demand for medical care and choice of health insurance coverage, with emphasis on its implications for demand behavior and empirical analysis. We show that an increase in the price of medical care has two effects on demand, the usual response of reduced quantity demanded and a health insurance contract choice effect resulting from the consumer's incentive to change insurance plan. The contract choice effect, widely neglected in studies of medical care demand, alters both the quantitative and qualitative predictive properties of the consumer's demand for medical services. (JEL D11, D81, I11 )     

INDIVIDUAL WELFARE WHEN CONSUMERS CAN SHOP FOR HEALTH INSURANCE

The statewide system of health insurance exchanges established by the Affordable Care Act (ACA) of 2010 will allow millions of U.S. citizens to change their health care policies more easily than they can switch automobile or homeowner insurance coverages, because deniability based on prior claim history is illegal. Focusing on this consumer endogeneity of health insurance policy choice, we examine the individual moral hazard welfare implications of a reduction in the price of medical care, which is a potential consequence of the ACA. We show that endogenous policy choice plays a key role in determining the welfare outcome. While moral hazard welfare improvement is not precluded, a distinctly possible outcome is that the consumer revises his/her choice of insurance policy so as to retain some portion of the reduction in expenditure risk caused by the medical care price decrease. In this event, moral hazard welfare loss is higher than it was before the price decrease, although the increased loss is tempered by the endogenous contract choice effect. This result resuscitates an old conventional wisdom. (JEL I11, I13, I30)     

Medical insurance, technological change, and welfare

Concerns have been expressed about the welfare effects of expensive innovations in medical care financed largely through medical insurance. This paper develops a model which considers such issues. It is shown that even if insurance is purchased optimally (subject to a plausible constraint on the form of the contract), innovations may be adopted that have the effect of reducing expected welfare. The question of how the benefits of medical innovations ought to be measured in the presence of insurance is also explored.     

ARM-BREAKING, CONSUMER CREDIT AND PERSONAL BANKRUPTCY

The consumer credit transaction is analyzed as a contract which provides insurance as well as present consumption for the borrower. Creditors' remedies such as "arm-breaking" are shown to facilitate provision of insurance (forgiveness of debts) when lenders cannot monitor outcomes. Alternatively, if outcomes are observable but lenders do not ex ante know the risk associated with each borrower, the market may generate an excessive amount of arm-breaking and agreements to forgo discharge following bankruptcy as low risk borrowers signal their characteristics, suggesting that government limitations on such provisions might be efficient. The secured credit transaction is shown to be a complex contract which attempts to provide efficient repayment, seller incentives for performance and mitigation following default, and insurance for the borrower. Garnishment and discharge of debts following bankruptcy are also considered.     

LOSING BY LESS? IMPORT COMPETITION,UNEMPLOYMENT INSURANCE GENEROSITY,AND CRIME

Increased import competition from China has brought about a host of negative consequences for the most exposed industries and labor markets. Do social programs attenuate these harmful effects? We examine changes in import competition between 1990 and 2007, taking crime as our outcome of interest and unemployment insurance as our mitigating program. We find strong evidence that counties with access to more generous unemployment insurance experienced relatively smaller increases in trade‐induced property crime. This highlights a new and important positive externality of unemployment insurance. (JEL H00, R10)     

PERCEIVED GAME UNCERTAINTY,SUSPENSE AND THE DEMAND FOR SPORT

This study tries bridging between different behavioral economic explanations for the lack of support of the uncertainty of outcome hypothesis in spectator sports. We test a measure of perceived game uncertainty that is comparable to objective measures frequently tested in the literature. Econometric results suggest that fans do not perceive closeness of a game differently than how economists have tended to measure it. However, fans' perceptions of suspensefulness are distinct from their perceptions of game uncertainty. Moreover, the finding that fans' preferences for game uncertainty are dominated by loss aversion also emerges—independently of fanship status—in our stated‐preference setting. (JEL L83, D12, Z2)     

Making financial uncertainty count: Unit-linked insurance,investment and the individualisation of financial risk in British life insurance

While most scholarship in the sociology of insurance has focused on the making of insurance risk by investigating mechanisms of pooling and spreading, this article examines insurers’ management of financial uncertainty. Based on a large corpus of written sources and 44 semi-structured oral history interviews, this article seeks to describe and explain a shift in how financial uncertainty is dealt with in British life insurance, away from traditional multipolar arrangements revolving around actuarial prudence and discretion, towards bipolar arrangements that rely on explicit risk quantification and the logic of risk-based capital to “individualise” financial risk. The article identifies two factors that were key in bringing about this shift: first, the competitive dynamics that unfolded with the emergence of challenger “unit-linked” insurers in the 1960s, and, second, changes in the professional ecology, as manifested by the changing relations between the actuarial profession and insurance supervisors.     

HOW HEALTH INSURANCE AFFECTS HEALTH CARE DEMAND—A STRUCTURAL ANALYSIS OF BEHAVIORAL MORAL HAZARD AND ADVERSE SELECTION

Individuals with health insurance use more health care. One reason is that health care is cheaper for the insured. Additionally, having insurance can encourage unhealthy behavior via moral hazard. Previous work studying the effect of health insurance on medical utilization has mostly ignored behavioral changes due to having health insurance, and how that in turn affects medical utilization. This paper investigates the structural causal relationships among health insurance status, health behavior, and medical utilization theoretically and empirically, and separates price effects from behavioral moral hazard effects. Also distinguished are the extensive versus intensive margins of insurance effects on behavior. (JEL C51, I12, D12)     

On institutions and wage determination

This paper examines the difficulties encountered in incorporating necessary institutional features of the labor market in wage change analysis. A simple ‘institutional’ model is advanced to clarify the method and implications of the incorporation of the relevant institutional detail. Certain lacunae of the research literature are identified and the need for relations supplemental to those already identified in that literature emphasized. Further process in applied work necessitates,inter al., recognition of the endogeneity of contract length and mode.     

PERSONALITY,INFORMATION ACQUISITION,AND CHOICE UNDER UNCERTAINTY: AN EXPERIMENTAL STUDY

This article studies the role of personality in choice under risk and uncertainty. We explore the hypothesis that personality plays a role in decision making in situations of uncertainty but not in situations of risk. In addition to offering support for this main hypothesis, we explore the various pathways through which personality exerts its influence. What we find is that in uncertain environments, where decision makers are able to acquire information about the unknown probability distributions they face, personality variables influence the type of information people acquire, which then influences their choice. Our experimental design brings in two novel aspects of choice under uncertainty: information acquisition and advice. The findings indicate that indeed, under uncertainty, personality matters for choice in a way it does not under risk. Furthermore, the results suggest that personality can play a role at multiple levels, such as people's preferences for certain types of information and the likelihood of following advice. (JEL C90, D03, D81)     

ADJUSTMENT TO PRODUCTION UNCERTAINTY AND THE THEORY OF THE FIRM: A COMMENT

This paper reconsiders the model presented by Flacco and Kroetch [1986]. It shows that with additive technological uncertainty the firm will produce and contract to sell the same output as under certainty. When the Flacco/Kroetch model is generalized to allow the firm to select contract commitments and planned output ex ante, no simple comparisons with certainty are possible. These results are broadly consistent with those obtained by Mills [1959; 1962] for demand uncertainty.     

Time Construction in Insurance Society

This article deals with the social meaning of insurance contracts in the late medieval and modern society. Starting from the empirical analysis of one of the early marine insurance contracts which were stipulated in the second half of the 14^th century, the hypothesis is suggested that the premium rate coincides with the estimated average frequency of sea accidents. By means of a proto‐probability calculus, rate was used by the early insurers for trading risks. Therefore the main thesis arises that insurance premium is a way of giving a certain price to the uncertainty of the future and that it indeed represents the cost of such observation. A comparison with the original function of money in primitive societies based on reciprocity is finally developed in order to explain how time construction is contingent on social structures.     

‘Scarier than another storm’: values at risk in the mapping and insuring of US floodplains

How do people respond to the ways in which insurance mediates environmental risks? Socio‐cultural risk research has characterized and analyzed the experiential dimension of risk, but has yet to focus on insurance, which is a key institution shaping how people understand and relate to risk. Insurance not only assesses and communicates risk; it also economizes it, making the problem on the ground not just one of risk, but also of value. This article addresses these issues with an investigation of the social life of the flood insurance rate map, the central technology of the U.S. National Flood Insurance Program (NFIP), as it grafts a new landscape of ‘value at risk’ onto the physical and social world of New York City in the aftermath of Hurricane Sandy. Like other risk technologies, ubiquitous in modern societies as decision‐making and planning tools, the map disseminates information about value and risk in order to tame uncertainty and enable prudent action oriented toward the future. However, drawing together interview, ethnographic, and documentary data, I find that for its users on the ground, the map does not simply measure ‘value at risk’ in ways that produce clear strategies for protecting property values from flooding. Instead, it puts values‐beyond simply the financial worth of places‐at risk, as well as implicates past, present, and future risks beyond simply flooding. By informing and enlarging the stakes of what needs protecting, and from what, I argue that plural and interacting ‘values at risk’ shape how people live with and respond to environmental risks that are mediated by insurance technologies.     

UNION POWER,COLLECTIVE BARGAINING,AND OPTIMAL MONETARY POLICY

We study Ramsey policies and optimal monetary policy rules in a dynamic New Keynesian model with unionized labor markets. Collective wage bargaining and unions' monopoly power amplify inefficient employment fluctuations. The optimal monetary policy must trade off between stabilizing inflation and reducing inefficient unemployment fluctuations induced by unions' monopoly power. In this context the monetary authority uses inflation as a tax on union rents and as a mean for indirect redistribution. Results are robust to the introduction of imperfect insurance on income shocks. The optimal monetary policy rule targets unemployment alongside inflation. (JEL E0, E4, E5, E6)     

DESPERATION OR DESIRE? THE ROLE OF RISK AVERSION IN MARRIAGE

Because of the uncertainty inherent in searching for a spouse and the uncertainty of the future quality and state of the marriage itself, risk attitudes likely directly impact the timing of marriage. The effect of an individual’s risk aversion, measured via a series of hypothetical gambles over income on time to marriage, is examined using survival analysis. I find risk aversion significantly affects time to marriage, with more risk averse respondents marrying sooner than their more risk‐loving counterparts. Within‐family analyses using sibling data reveal a similar pattern. In addition, the effect of risk aversion on time to marriage is larger in magnitude and more statistically significant for men. One possible explanation for the different results between the sexes is that women value risk aversion as a desirable trait in potential mates. (JEL J10, J11, J12, J16)     

The premium of inflation-indexed life insurances for the Romanian life table

This paper deals with the pricing process of life insurances that provide an insured sum indexed annually according to the current inflation rate. In these terms we propose an appropriate formula for the discount factor. In order to describe the inflation, we consider a stochastic autoregressive model. We deduce analytical expressions for the mean value and the variance of random variable defined as the present value of 1 unit indexed annually according to the inflation rate, payable over t years, when inflation is generated by an autoregressive process of order one. At the same time, we obtain numerical results for the Romanian life table, regarding the mean and the standard deviation for the actuarial present value of a pure endowment life insurance with the sum insured indexed annually with the inflation rate.     

Identity processes in the global era: the case of young immigrants living in Italy

The paper explores processes of identity construction in young people of foreign origin living in Italy. The aim was to understand how youth construct their selves in the global era, characterized by an increase in the possibility of choosing but also in the perception of uncertainty; how they perceive this uncertainty, whether as a chance to construct multifaceted and continually changing identities or as a source of insecurity and loss for their identity. Drawing on 46 in-depth interviews, the research reveals that young people of foreign origin are continually shaping their identities mixing different cultural repertories related to their – or their parents’ – homeland, to the host country, global cultures and youth cultures. Several patterns of identity emerge and they are linked to different perception of uncertainty. A typology of these patterns was developed: young people construct flexible identities or hyphenated identities, or move from a fixed identity to an undefined identity. These types of identity are respectively associated with the perception of uncertainty as a resource, as a constraint, finally with a strategy of reducing or eliminating uncertainty.     

Unemployment,Reemployment, and Health Insurance Status Among Older Workers in the Flexible Labor Market

As employment becomes more precarious, and spells of displacement become more common across the labor market, many individuals are forced to make decisions about the speed at which they seek reemployment and the types of employment they will seek. Using repeated cross‐sectional data from various years of the Displaced Worker Supplement of the Current Population Survey, we examine the degree to which employer‐provided health insurance and organizational provision of advanced layoff warning helped workers—particularly those from earlier birth cohorts—navigate the labor market during a period of growing employment flexibility. Our results indicate that workers from older cohorts, rather than older chronological ages, suffered more from displacement in terms of longer unemployment spells and declines in job quality upon reemployment. Workers able to obtain a job with health insurance had shorter unemployment durations, while those displaced from jobs with health insurance remained unemployed for longer periods of time. Advance notice appears to reduce some of the disproportionately negative effects of displacement for older workers, perhaps by easing the shock of a psychological contract breach. Our findings point to the importance of historical and cultural factors in shaping labor market outcomes.     

IS THERE ADVERSE SELECTION IN LIFE INSURANCE MARKETS?

Adverse selection theory predicts people with a high risk of death are more likely to own life insurance. Using a unique data set merging administrative and survey records, we test this theory and find the opposite: people with high death risk are less likely to own life insurance. We postulate advantageous selection and price discrimination swamp adverse selection in individual life insurance markets. To determine which effect is more powerful, we analyze group life insurance markets, where insurance companies cannot price discriminate as well as in individual markets. Our data suggest that price discrimination has a stronger effect than advantageous selection. (JEL D8, G1, I1)