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Hilton Atlanta, 302
Hosted By:
American Risk and Insurance Association & American Economic Association
traits and preferences are fixed within an adult population. The extent to which this
assumption holds true is being contested in the more recent empirical literature. We
analyze the very short-term causal impact of exposure to one of the most powerful
storms ever recorded to strike land on locus of control, reciprocity, and risk preferences
for a sample of 2,352 individuals in the Philippines. While we find that post disaster
people exhibit significantly higher internal locus of control, lower reciprocity, and lower
risk-aversion, effect sizes at the extensive margin are modest. This type of short-term
shift towards “rationality” has not been observed before, filling a gap in the emerging
literature on the stability of non-cognitive skills and has potential implications for
post-disaster response policies.
option to the writer—and may even yield negative marginal option values. We demonstrate
the relevance of this mechanism in the context of variable annuities with popular withdrawal
guarantees, both theoretically and empirically. More precisely, we show that in the presence
of income and capital gains taxation for the policyholder, adding on a common death benefit
option—allowing to continue the withdrawal guarantee in case of death—changes the policyholder’s
optimal withdrawal behavior. As a consequence, the total value of the contract from
the perspective of the insurer may decrease, i.e. the marginal option value is negative. This may
explain the common practice of including death benefit options without additional charges in
these products.
Topics in Risk and Insurance
Paper Session
Saturday, Jan. 5, 2019 2:30 PM - 4:30 PM
- Chair: Sharon Tennyson, Cornell University
Awakening of the Rational Man? Non-Cognitive Skills After the Storm
Abstract
A common assumption in economics is that non-cognitive skills such as personalitytraits and preferences are fixed within an adult population. The extent to which this
assumption holds true is being contested in the more recent empirical literature. We
analyze the very short-term causal impact of exposure to one of the most powerful
storms ever recorded to strike land on locus of control, reciprocity, and risk preferences
for a sample of 2,352 individuals in the Philippines. While we find that post disaster
people exhibit significantly higher internal locus of control, lower reciprocity, and lower
risk-aversion, effect sizes at the extensive margin are modest. This type of short-term
shift towards “rationality” has not been observed before, filling a gap in the emerging
literature on the stability of non-cognitive skills and has potential implications for
post-disaster response policies.
Negative Marginal Option Values: The Interaction of Frictions and Option Exercise in Variable Annuities
Abstract
Market frictions can affect option exercise, which in turn affects the value of a marginaloption to the writer—and may even yield negative marginal option values. We demonstrate
the relevance of this mechanism in the context of variable annuities with popular withdrawal
guarantees, both theoretically and empirically. More precisely, we show that in the presence
of income and capital gains taxation for the policyholder, adding on a common death benefit
option—allowing to continue the withdrawal guarantee in case of death—changes the policyholder’s
optimal withdrawal behavior. As a consequence, the total value of the contract from
the perspective of the insurer may decrease, i.e. the marginal option value is negative. This may
explain the common practice of including death benefit options without additional charges in
these products.
Effects of Background Risk on Household Financial Portfolios: Evidence from the Affordable Care Act
Abstract
This article examines the effects of the health insurance coverage mandate for dependents on household financial portfolio decisions by focusing on the Affordable Care Act of 2010. Using the Survey of Income and Program Participation data, the author finds that the dependent coverage mandate significantly increased (decreased) the share of stocks (bonds and other interest-accruing assets) by 2.5 (1.3 and 1.1) percentage points for households having both parental employer-sponsored health insurance and dependent children aged 19 to 25 years. The mediation analysis suggests that the mandate had a positive effect on shares of stocks through increase in health insurance coverage.Discussant(s)
M. Martin Boyer
,
HEC Montreal
Anita Mukherjee
,
University of Wisconsin
Richard D. Phillips
,
Georgia State University
Justin Sydnor
,
University of Wisconsin
JEL Classifications
- D8 - Information, Knowledge, and Uncertainty