Risk,ambiguity, and insurance

In a series of experiments, economically sophisticated subjects, including professional actuaries, priced insurance both as consumers and as firms under conditions of ambiguity. Findings support implications of the Einhorn-Hogarth ambiguity model: (1) For low probability-of-loss events, prices of both consumers and firms indicated aversion to ambiguity; (2) As probabilities of losses increased, aversion to ambiguity decreased, with consumers exhibiting ambiguity preference for high probability-of-loss events; and (3) Firms showed greater aversion to ambiguity than consumers. The results are shown to be incompatible with traditional economic analysis of insurance markets and are discussed with respect to the effects of ambiguity on the supply and demand for insurance.University of Chicago Graduate School of BusinessUniversity of Pennsylvania The Wharton School     

Developing Models for Day Services

This paper reports an evaluation of a rural activity project for people with learning difficulties. The project is situated in (but not a regular part of) an agriculture college. Both statutory and voluntary interests are represented in the management of the scheme, which is funded by the All Wales Strategy for the Mentally Handicapped through the local authority. Despite the widespread presence of ideas about normalization and carer participation, key stakeholders in the project appeared to draw on various aspects of three different models in describing, assessing and participating in the work of the scheme: a training for work model, a personal and social growth model, and an education for life model. We explore the question of whether such contrasting views can be tolerated in a single project, and their implications for policy and practice decisions. Each model has its distinctive consequences for project aims, selection, programme planning, staffing requirements, future development objectives and desirable project outcomes. The debate has implications for the way in which policies of normalization are operationalized in and beyond the field of learning difficulties.     

The Effects of Allostatic Load on Racial/Ethnic Mortality Differences in the United States

This study expands on previous findings of racial/ethnic and allostatic load (AL) associations with mortality by addressing whether differential AL levels by race/ethnicity may explain all-cause mortality differences. This study used data from the third National Health and Nutrition Survey public-use file, gathered between 1988 and 1994, with up to 18 years of mortality follow-up (n = 11,733). AL scores were calculated using a 10-biomarker algorithm based on clinically determined thresholds. Results of discrete-time hazard models suggest that AL is associated with increased mortality risks, independent of other factors, including race/ethnicity and SES. The results also suggest that the AL–mortality association is stronger for non-Hispanic blacks than for non-Hispanic whites, and that at low levels of AL observed mortality differences between non-Hispanic blacks and non-Hispanic whites are non-significant. These findings suggest that mortality differences between non-Hispanic blacks and non-Hispanic whites may be the result of how early life exposure causes premature aging and increased mortality risks. More attention to resource allocation and local environments is needed to understand why non-Hispanic blacks experience premature aging that leads to differential mortality risks compared to non-Hispanic whites.     

“Moving from transactional government to enablement” in Indigenous service delivery: The era of New Public Management,service innovation and urban Aboriginal community development

Over the last 40 years, Aboriginal Community Based Organisations have played a distinctive role in society in relation to urban Aboriginal peoples and their rights to self‐determination and community development in the Australian city of Newcastle. They have proven essential to advocacy, the maintenance of community development, and the creation of new Aboriginal social infrastructure (community organisations, facilities, services, and supporting infrastructure). Autonomy has been empowering for local Aboriginal people. Major reforms to the delivery of government social services, particularly government enablement of a new social service market based on New Public Management principles, threaten this success. This interpretive, qualitative case study illustrates the effects of social service market enablement. It draws on a case study of the effects of social service market enablement on urban Aboriginal Community Based Organisations in Newcastle, showing the antagonistic relationship between social service market enablement and Aboriginal community enablement and development. It ends with a discussion of how Aboriginal community development in this city could be re‐enabled in light of the Prime Minister's arguments in his 2017 Annual Parliamentary Closing the Gap speech providing particular value in the context of policy discussions about moving from transactional government to enablement in Indigenous affairs.     

Social Contagion and General Diffusion Models of Adolescent Religious Transitions: A Tutorial,and EMOSA Applications

Epidemic Models of the Onset of Social Activities (EMOSA) describe behaviors that spread through social networks. Two social influence methods are represented, social contagion (one-to-one spread) and general diffusion (spread through cultural channels). Past models explain problem behaviors—smoking, drinking, sexuality, and delinquency. We provide review, and a tutorial (including examples). Following, we present new EMOSA models explaining changes in adolescent and young adult religious participation. We fit the model to 10 years of data from the 1997 U.S. National Longitudinal Survey of Youth. Innovations include a three-stage bi-directional model, Bayesian Markov Chain Monte Carlo (MCMC) estimation, graphical innovations, and empirical validation. General diffusion dominated rapid reduction in church attendance during adolescence; both diffusion and social contagion explained church attendance stability in early adulthood.     

The Effects of Knowledge Management on Team Members' Ratings of Project Success and Impact*

Many organizations are trying to improve the generation and utilization of knowledge. The activities associated with these efforts are identified as organizational knowledge management (KM). While much has been written about knowledge management from the organizational level, the success of such efforts over the long run will depend upon on how KM activities impact important outcomes as perceived by those at the employee level who actually implement the activities. This study used the input‐process‐output framework of team effectiveness to investigate the relationship between selected KM‐related activities on integrated product and process development team members' satisfaction with their project's success and the impact they expected it to have on the organization. The results indicate that team‐level leadership and support (i.e., inputs), along with knowledge generation and dissemination (i.e., processes), are key drivers of member performance‐related ratings (i.e., outputs). Finally, and possibly most importantly, a number of interactions were evident suggesting that the KM processes moderate the effects of the KM inputs. These findings and their implications are discussed.     

Externalities in the wildland–urban interface: Private decisions,collective action,and results from wildfire simulation models for California

Property damage from wildfires occurs from spread into built-up areas, the wildland–urban interface. Fire spread occurs as embers from one burning structure ignite neighboring ones—but mitigation reduces the chances that fire spreads. In this study, we use a simulation model with realistic parameters for a neighborhood in California to illustrate patterns of marginal benefit from mitigation. We extend existing models of fire spread in two novel ways. We show how to describe the no-regulation equilibrium and social optimal levels of mitigation by incorporating data on a key factor, the distribution of house values in the community. We incorporate insurance in the model and show that it improves homeowner decision-making and insurance premium regulation. The fire spread simulations show that under plausible parameter values, there is a pattern in which mitigation's marginal benefit is low at low levels of community mitigation, rises to a maximum, and then falls quickly to a low level. We argue that the maximum marginal benefit is a guide to achieving optimal mitigation in a community. Owner mitigation decisions will depend on the distribution of house values in the neighborhood and other factors. In an illustration, we use the distribution of house values in a California community to illustrate the mitigation owners will choose under independent (Nash) investment decisions, and the efficiency-improving actions involving regulations or insurance premium subsidies that can lead to the social optimum.     

Benefits of and strategies to update premium rates in the US National Flood Insurance Program under climate change

The United States’ National Flood Insurance Program (NFIP) has accumulated over $20 billion in debt to the US Treasury since 2005, partly due to discounted premiums on homes in flood-prone areas. To address this issue, FEMA introduced Risk Rating 2.0 in October 2021, which is able to assess and charge more accurate and equitable rates to homeowners. However, rates must be continually updated to account for increasing flood damage caused by sea level rise and more intense hurricanes due to climate change. This study proposes a strategy to adopt updated premium rates that account for climate change effects and address affordability and risk mitigation issues with a means-tested voucher program. The strategy is tested in a coastal community, Ortley Beach, NJ, by projecting its future flood risk under sea level rise and storm intensification. Compared with using static rates for all the properties in Ortley Beach, the proposed strategy is shown to reduce the NFIP's potential losses to the community from 2020 to 2050 by half (from $4.6 million to $2.3 million), improve the community's flood resistance, and address affordability concerns. Sensitivity analysis of varying incomes, loan interest rates, and conditions for a voucher indicates that the strategy is feasible and effective under a wide range of scenarios. Thus, the proposed strategy can be applied to various communities along the US coastline as an effective way of updating risk-based premiums while addressing affordability and resilience concerns.