CER-ETH Research Seminar, Spring Term 2012

Everyone who is interested is cordially invited!

If you would like to receive our weekly invitation via e-mail, or if you have any other question, please contact Jean-Philippe Nicolai

Speakers

Alexander Muermann

Insurance contracts are often complex and difficult to verify outside the insurance relation. We show that standard one-period insurance policies with an upper limit and a deductible are the optimal incentive-compatible contracts in a competitive market with repeated interaction. Optimal group insurance policies involve a joint upper limit but individual deductibles and insurance brokers can play a role implementing such contracts for the group of clients. Our model provides new insights and predictions about the determinants of insurance.

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Pascal St-Amour

Despite evidence of correlations between financial and medical statuses and decisions, most models treat financial and health-related choices separately. This paper bridges this gap by proposing a tractable dynamic framework for the joint determination of optimal consumption, portfolio holdings, medical expenditures and health insurance. We solve for the optimal rules in closed form and capitalize on this tractability to gain a better understanding of the conditions under which separation between financial and health-related decisions is sensible, and of the pathways through which wealth and health determine allocations, welfare and other variables of interest such as expected longevity or the value of health. Furthermore we show that the model is consistent with the observed patterns of individual allocations and provide realistic estimate of the parameters that confirm the relevance of all the main characteristics of the model.

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Wanda Mimra

Can profit-making contract menus exist in competitive insurance markets under adverse selection when the single-crossing property does not hold? We show that the answer to this question is related to the equilibrium non-existence problem in the standard Rothschild-Stiglitz framework where single-crossing holds: In a framework where cross-subsidizing contracts can be sustained in equilibrium, then profit-making contract menus cannot exist. If however equilibrium contracts in the standard framework are always individually non-loss-making, then profit-making contract menus can occur when single-crossing does not hold.

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Yolande Hiriart

We analyze the regulation of firms that undertake socially risky activities but can reduce the probability of an accident inflicted on third-parties by carrying out nonverifiable effort. Congress delegates regulation to an Agency, though these two bodies may have different preferences towards the industry. The optimal level of discretion left to the Agency results from the following trade-off: the Agency can tailor discretionary policies to its expert knowledge about potential harm, but it implements policies which are too “pro-industry”. The Agency should be given full discretion when the firm is solvent; partial discretion is preferred otherwise. We then investigate how this trade-off changes as the political and economic landscapes are modified.

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Aude Pommeret

This paper investigates the income-pollution relationship within an optimal AK growth model with technological and ecological switches. We show that the EKC, that is usually seen as a description of the relationship between wealth and pollution along the different development stages of one country, can also emerge as a result of the implementation of the optimal policy from the current development stage of the economy.

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