A comparison of structural productivity levels in the major industrialised countries

Hourly labour productivity levels in a number of European countries are thought to be very close to, or possibly even higher than the level ‘observed’ in the United States. At the same time, however, there are big differentials between hours worked and/or employment rates in these countries and in the United States. Frequent mention is also made of the theory of diminishing returns to hours worked and the employment rate. The object of the analysis proposed here is to adjust the ‘observed’ levels of hourly productivity for the effect of the differentials (with the United States) in the hours worked and/or employment rates of several categories of the population of working age in order to calculate ‘structural’ hourly productivity. The results obtained confirm the diminishing returns to hours worked and the employment rate (especially where young and elderly people are concerned). The level of ‘structural’ hourly productivity appears to be highest in the United States, suggesting that the differential between per capita GDP in the European countries and in the United States is attributable to hours worked and employment rates being at lower levels, and also to lower ‘structural’ hourly productivity.Productivity; Employment rates; Working time; ICTs; Well-being

Capital reserve policy, regulation and credibility in insurance

The aim of this paper is to analyze the need for capital and default regulation in insurance. Proponents of deregulation argue that these requirements are useless as insurers would hold enough capital as soon as the insured are fully informed about their default probability. Adding to the purpose the relationship between an insurer and her security holders (that is the issuance and dividend policy) we show that the second best capital reserve decided by the security holders is suboptimal whenever the return on cash inside the firm is smaller than outside. Because of limited commitment on recapitalization, disclosure of information may not be enough. Given these characteristics, State commitment to recapitalize could be an alternative regulation policy.insurance, capital reserve, regulation, recapitalization

MUTUAL INSURANCE WITH ASYMMETRIC INFORMATION: THE CASE OF ADVERSE SELECTION

This paper examines the impact of risk heterogeneity and asymmetric information on mutual risk-sharing agreements. It displays the optimal incentive compatible sharing rule in a simple two-agent model with two levels of risk. When individual risk is public information, equal sharing of wealth is not achievable when risk heterogeneity is too large or when risk aversion is too low. However the mutualization principle still holds as agents only bear aggregate risk. This result no longer holds when risk is private information. Moreover, the asymmetry of information (i) makes equal sharing unsustainable when both individuals are low risk types (ii) induces some exchanges when agents have the same level of initial wealth and (iii) induces changes in the direction of transfer with respect to the complete information benchmark in some states of nature when risk types are independent and absolute risk aversion is decreasing and convex.Mutual agreements; Asymmetric information; Mechanism Design

Prevention Incentives in Long-Term Insurance Contracts

Long-term insurance contracts are widespread, particularly in public health and the labor market. Such contracts typically involve monthly or annual premia which are related to the insured’s risk profile, where a given profile might change based on observed outcomes which depend on the insured’s prevention efforts. The aim of this paper is to analyze the latter relationship. In a two-period optimal insurance contract in which the insured’s risk profile is partly governed by the effort he puts on prevention, we find that both the insured’s risk aversion and prudence play a crucial role. If absolute prudence is greater than twice absolute risk aversion, moral hazard justifies setting a higher premium in the first period but also greater premium discrimination in the second period. For specific utility functions, moreover, an increase in the gap between prudence and risk aversion increases the initial premium and the subsequent premium discrimination. These results provide insights on the tradeoffs between long-term insurance and the incentives for primary prevention arising from risk classification, as well as between inter- and intra-generational insurance

MORAL HAZARD IN DYNAMIC INSURANCE CLASSIFICATION RISK AND PREPAYMENT

This paper examines the effect of moral hazard on dynamic insurance contract. It models primary prevention in a two period model with classification risk. Agents' preferences appear to play an important role in the determination of preventive effort and prepayment. If absolute prudence is larger that absolute risk aversion, moral hazard increases prepayment of premium and classification risk. This highlights a tradeoff between prevention and prepayment that arises from the classification risk. An increase in the difference between prudence and twice risk aversion (that we define as the degree of foresight) moreover makes dynamic insurance contracts more stable (when competing with spot insurance) if the cost of prevention is low enough when agents preferences exhibit CRRA. Under a formulated utility function with linear reciprocal derivative, we finally show that an increase in agents' degree of foresight enhances the stability of dynamic contract and the extent of prepayment.Le présent article a pour but d'étudier l'effet de l'aléa moral sur les contrats d'assurance dynamique. Des efforts de prévention primaire sont introduits dans un modèle à deux périodes avec risque de classification. Ce travail met en évidence le rôle de la prudence et de l'aversion au risque dans la détermination des efforts de prévention primaire et du degré de prépaiement. Si le coefficient absolu de prudence est supérieur à deux fois le coefficient absolu d'aversion au risque, la prise en compte de l'aléa moral augmente le prépaiement et le risque de classification. Ce résultat met en évidence l'arbitrage fait par les agents face au risque de classification, entre effort de prévention et prépaiement des primes. Dans le cas d'agents aux préférences CRRA il apparait par ailleurs qu'un accord d'assurance mutuelle est d'autant plus stable par rapport au phénomène d'écrémage qu'il concerne des agents prévoyants (i.e. dont l'écart entre prudence et deux fois l'aversion au risque est élevé). Enfin, en spécifiant une fonction d'utilité dont la réciproque à une dérivée linéaire, il apparaît qu'une augmentation du degré de prévoyance des agents, accroît le degré de prépaiement et améliore la stabilité du contrat dynamique

MORAL HAZARD IN DYNAMIC INSURANCE CLASSIFICATION RISK AND PREPAYMENT

This paper examines the effect of moral hazard on dynamic insurance contract. It models primary prevention in a two period model with classification risk. Agents' preferences appear to play an important role in the determination of preventive effort and prepayment. If absolute prudence is larger that absolute risk aversion, moral hazard increases prepayment of premium and classification risk. This highlights a tradeoff between prevention and prepayment that arises from the classification risk. An increase in the difference between prudence and twice risk aversion (that we define as the degree of foresight) moreover makes dynamic insurance contracts more stable (when competing with spot insurance) if the cost of prevention is low enough when agents preferences exhibit CRRA. Under a formulated utility function with linear reciprocal derivative, we finally show that an increase in agents' degree of foresight enhances the stability of dynamic contract and the extent of prepayment.Dynamic Insurance, Classification Risk, Moral Hazard, Prudence

Moral hazard and risk-sharing: risk-taking as an incentive tool

We examine how moral hazard impacts risk-sharing when risk-taking can be part of the mechanism design. In a two-agent model with binary effort, we show that moral hazard always increases risk-taking (that is the amount of wealth invested in a risky project) whereas the effect on risk-sharing (the amount of wealth transferred between agents) is ambiguous. Risk-taking therefore appears as a useful incentive tool. In particular, in the case of preferences exhibiting Constant Absolute Risk Aversion (CARA), moral hazard has no impact on risk-sharing and risk-taking is the unique mechanism used to solve moral hazard. Thus, risk-taking appears to be the prevailing incentive tool.Risk-Taking, Informal Insurance, Moral Hazard

Employment and productivity: disentangling employment structure and qualification effects

This paper studies the effect of changes in the employment rate on labour productivity per hour, taking an empirical approach. By splitting the workforce into three qualification categories, this study allows us to distinguish the effects of changes in the employment rate structure from those of changes in the qualification structure. With the results obtained, we are then able to emphasise the mechanical effect on GDP, for each country in our panel, of a catch-up with the best practice with respect to employment rate structure and qualification level. It appears that the two effects are more or less of the same magnitude. Moreover, this methodology allows us to rank the countries in our panel depending on the gains they could expect from adopting the best practices in each of the two areas.Productivity; Growth; Employment; Education

Evolving Informal Risk-Sharing Cooperatives and Other-Regarding Preferences

In this paper we present a model of formation and destruction of informal cooperatives in a population of agents who perform a risky activity and who are heterogeneous in terms of success in their actions. Although some agents have high-risk and others low-risk, our model displays a dynamics with cooperatives in which agents share equally their income with a certain stability. We are interested in studying at the same time the existence of cooperatives, their ability to integrate a large proportion of agents and the degree of segregation of these cooperatives. Three factors can explain the existence, stability and lack of segregation. First, we show that the classical explanation in economics holds within the framework of our model: when agents are risk averse, high success agents can share with low success agents so that to stabilize the value of their income - the higher the risk aversion, the more stable the cooperatives and the lower the segregation. Learning can explain in a small proportion the existence of cooperatives: we designed agents so that they have to learn whether they are high or low-risk, and while they are learning, they tend to create cooperatives that can last. Eventually we worked on the integration of other-regarding preferences in the model, with two different definitions. As expected, the influence of other-regarding preferences is to increase stability and decrease segregation, and the two models of rationality react differently to the type of network in which the agents are immersed. This paper, mainly exploratory, presents our model and shows the influence of the definition of network as well as all other factors presented before. In that sense, although we have mainly done a rough exploration of its relevant parameters for the moment, it exposes different insights that can be gained by its study

MUTUAL INSURANCE WITH ASYMMETRIC INFORMATION: THE CASE OF ADVERSE SELECTION

This paper examines the impact of risk heterogeneity and asymmetric information on mutual risk-sharing agreements. It displays the optimal incentive compatible sharing rule in a simple two-agent model with two levels of risk. When individual risk is public information, equal sharing of wealth is not achievable when risk heterogeneity is too large or when risk aversion is too low. However the mutualization principle still holds as agents only bear aggregate risk. This result no longer holds when risk is private information. Moreover, the asymmetry of information (i) makes equal sharing unsustainable when both individuals are low risk types (ii) induces some exchanges when agents have the same level of initial wealth and (iii) induces changes in the direction of transfer with respect to the complete information benchmark in some states of nature when risk types are independent and absolute risk aversion is decreasing and convex