Governing kidnap for ransom: Lloyd's as a “private regime”

Kidnap for ransom raises significant governance challenges. In the absence of formal regulation and enforcement, insurers have created an effective private governance regime to facilitate smooth commercial resolutions. Controlling ransoms is paramount: “supernormal” profits for kidnappers create kidnapping booms and undermine the market for insurance. Ransom control requires cooperation, but there are high transactions costs in enforcing a collusive agreement. The Coasean prediction is that a single firm will form to internalize the externalities arising from lax insurance and mismanaged ransom negotiations—or a government must order the market. There is indeed a single source of kidnap insurance: Lloyd's of London. Yet, within the Lloyd's market several insurers compete for business. Lloyd's is a club providing private governance: Its members issue standard contracts, follow the same regime for kidnap resolution, and exchange information to stabilize ransoms. Lloyd's, therefore, combines aspects of Coase's “single firm” and “government” solution to the externalities problem.     

Kidnap insurance and its impact on kidnapping outcomes

In the developing world, kidnapping is relatively common, and a market for kidnap insurance has arisen in response. We provide a model that allows us to analyze how kidnap insurance affects the interaction between the kidnapper and the victim’s family when both are self-interested and have complete knowledge. We find that a market for kidnap insurance can be supported because it benefits a risk-averse family, as long as the introduction of insurance does not increase the risk of kidnapping too much. Families should fully insure if purchasing insurance does not increase the probability of kidnapping, and partially insure otherwise. Kidnapping insurance allows families to redeem hostages from kidnappers with a greater willingness to kill, which may reduce the number of kidnapping fatalities as long as the insurance does not increase the risk of kidnapping too much.     

Beginnings of Real Estate Brokerage in Moscow

Abstract

This article describes the private housing transactions that are emerging as a large portion of Moscow's housing stock is transferred into private ownership and becomes available for sale or rent. An industry of real estate brokers is developing to facilitate those transactions. The structure of this industry is evolving and, so far, reflects the fragmented nature of the housing market it serves. No industrywide practices or standards have been developed.

It is not clear whether the U.S. model for maximizing information available to real estate brokers and their clients—the multiple listing service based on exclusive listing contracts—will be followed in Moscow, or even whether this is the model best suited to the Russian housing market. Furthermore, the nature and timing of government regulation of real estate brokerage will require careful design to avoid restricting competition and limiting the efficient pricing and housing mobility that can result from a well‐functioning real estate market.     

Early Impacts of the Affordable Care Act on Health Insurance Coverage in Medicaid Expansion and Non‐Expansion States

The Affordable Care Act (ACA) aimed to achieve nearly universal health insurance coverage in the United States through a combination of insurance market reforms, mandates, subsidies, health insurance exchanges, and Medicaid expansions, most of which took effect in 2014. This paper estimates the causal effects of the ACA on health insurance coverage in 2014 using data from the American Community Survey. We utilize difference‐in‐difference‐in‐differences models that exploit cross‐sectional variation in the intensity of treatment arising from state participation in the Medicaid expansion and local area pre‐ACA uninsured rates. This strategy allows us to identify the effects of the ACA in both Medicaid expansion and non‐expansion states. Our preferred specification suggests that, at the average pre‐treatment uninsured rate, the full ACA increased the proportion of residents with insurance by 5.9 percentage points compared to 2.8 percentage points in states that did not expand Medicaid. Private insurance expansions from the ACA were due to increases in both employer‐provided and non‐group coverage. The coverage gains from the full ACA were largest for those without a college degree, non‐whites, young adults, unmarried individuals, and those without children in the home. We find no evidence that the Medicaid expansion crowded out private coverage.     

The moral hazards of neo-liberalism: lessons from the private insurance industry

The key tenets of neo-liberalism regarding risk, governance, and responsibility are critically evaluated through an empirical study of the private insurance industry. Recent tendencies in this industry towards increasing segmentation of consumers regarding risk, and towards an expansion of private policing of insurance fraud, are analysed. The definition of moral hazard is broadened to include all parties in the insurance relationship, not just the insured. Moral hazards embedded in the social organization of private insurance lead to various kinds of immoral risky behaviour by insureds, insurance companies, and their employees, and to intensified efforts to regulate this behaviour. The analysis concludes with some critical observations about the neo-liberal emphasis on minimal state, market fundamentalism, risk-taking, individual responsibility, and acceptance of inequality.     

The government behind insurance governance: Lessons for ransomware

The insurance as governance literature focuses on the ability of private enterprises to collectively regulate, pool, and distribute risks. This paper analyzes how governments support insurance markets to maintain insurability and limit risks to society. We propose a new conceptual framework grouping government interventions into three dimensions: regulation of risky activity, public investment in risk reduction, and co-insurance. We apply this framework to six case studies, describing insurance markets' reliance on public support in more analytically precise terms. We analyze how mature insurance markets overcame insurability challenges akin to those currently presented by extortive cybercrime. Private governance struggled when markets grew too big for informal coordination or when (tail) risks escalated. Government interventions vary widely. Some governments prioritize supporting economic activity while others concentrate on containing risks. Governments also choose between risk reduction and ex post socialization of losses. We apply these insights to the market for ransomware insurance, discussing the merits and potential hazards of current proposals for government intervention.     

The Challenging Business of Long-Term Public–Private Partnerships: Reflections on Local Experience

Many widely publicized arrangements bearing the popular "public–private partnership" label are complex, long-term contracts between municipalities and private companies. In theory, these innovative contracts offer substantial public benefits, including improved service quality, risk sharing with the private sector, and cost savings. In practice, however, the challenges that long-term contracts pose can undermine their successful implementation at the local level. Drawing on illustrative cases, this article explores some practical impediments to achieving market-driven competition, equitable risk sharing, effective performance guarantees, and appropriate transparency in innovative long-term contracts. It examines the inapplicability of the partnership model to most commercial transactions between government and business, the risks of uncontrollable circumstances, the impact of local resource constraints, and barriers to transparency in long-term contracts. It concludes that local governments embarking on long-term contracts must invest in specialized expertise, effective contract management, and strong governance structures.     

The reverse mortgage as an asset management tool

Abstract

Reverse mortgages are usually seen as a vehicle for increasing the income of poor, elderly households. This perspective, coupled with the relatively slow growth of reverse mortgage programs, has led some observers to question the growth potential of the reverse mortgage market. This article presents a more expansive view of reverse mortgages as a financial tool for tapping housing equity for various purposes and at various stages in the life cycle.

Three market segments for reverse mortgages are discussed: elderly persons living alone, other elderly households, and non‐elderly households. Potential uses include turning housing equity into personal human capital investment accounts, enabling children to provide care for their disabled parents, funding elderly households’ long‐term care insurance, and sustaining consumption. Recent progress in product development and availability and political pressures to find private financing for health and long‐term care suggest that the reverse mortgage market has considerable growth potential.     

Cyber insurance and private governance: The enforcement power of markets

In the last half decade, cyber insurance has emerged as a multi-billion-dollar industry with the authority to set and enforce standards of security behavior. Although cybersecurity has become a concern of national policymakers, insurers appear to have supplanted the state to play an influential role in governing some aspects of client behavior. This paper explores private governance by cyber insurance firms and evaluates two competing explanations for its emergence – either that the private sector advanced to set and enforce cybersecurity standards for financial gain, or that the state retreated from its responsibility to regulate and private sector actors filled the gap only as necessary. To find an answer between these explanations, this article develops a single outcome case study of the American cyber insurance industry. Following a theoretical introduction to private governance and its manifestation through insurance, the article examines the insurance process and its application in cybersecurity, the key role of standards, and the mechanism of enforcing those standards. The article concludes by identifying key elements of this market-based enforcement and discussing implications for crafting effective private governance in other domains and public policy.     

Polanyi in Brussels or Luxembourg? Social rights and market regulation in European insurance

The decision of the Court of Justice of the European Union to ban sex discrimination in insurance has shown the potential reach of the principle of non‐discrimination. This paper discusses the different positions taken by participants in the policy process leading up to the decision, in order to reveal the potential and limitations of non‐discrimination as the basis for market‐regulatory social policy. It is shown that the European Commission's initial support for prohibiting insurance discrimination faltered with the realization that the measure would have little efficacy as a distributive social policy. It was left to the Court to assert that non‐discrimination rights are constitutive for European markets, regardless of their functional and instrumental limitations. The Court's focus was on the market‐integrative potential of rights as sources of norms for the conduct of insurance relationships. It is argued that this form of constitutive regulation is distinct from distributive social policy as it does not require that outcomes are egalitarian, but, rather, that the processes governing market relations should respect fundamental rights.     

The Effect of Requiring Private Employers to Extend Health Benefit Eligibility to Same‐Sex Partners of Employees: Evidence from California

Health disparities related to sexual orientation are well documented and may be due to unequal access to a partner's employer‐sponsored insurance (ESI). We provide the literature's first evaluation of legislation enacted by California in 2005 that required private employers within the state to treat employees in committed same‐sex relationships in the same way as employees in different‐sex marriages with respect to ESI. Our analysis uses data on sexual orientation, partnership, and health insurance from the 2001 to 2007 California Health Interview Surveys (CHIS). Prior to the reform, partnered gay men and lesbians were significantly less likely to have ESI in someone else's name than partnered heterosexuals. Pooling data from 2001 to 2007, we find that the reform had no effects on differences in insurance outcomes between gay and straight men. We find some evidence that the reform increased partnership, reduced full‐time employment, and increased health insurance coverage among lesbians relative to heterosexual women. The increases in insurance coverage for lesbians are consistent with a role for expanded dependent ESI, suggesting that such policies may reduce sexual orientation‐based insurance disparities among women.     

Labor market policy: A comparative view on the costs and benefits of labor market flexibility

I review theories and evidence on wage‐setting institutions and labor market policies in an international comparative context. These include collective bargaining, minimum wages, employment protection laws, unemployment insurance (UI), mandated parental leave, and active labor market policies (ALMPs). Since it is unlikely that an unregulated private sector would provide the income insurance these institutions do, these policies may enhance economic efficiency. However, to the extent that unemployment or resource misallocation results from such measures, these efficiency gains may be offset. Overall, Scandinavia and Central Europe follow distinctively more interventionist policies than the English‐speaking countries in the Northern Hemisphere. Possible explanations for such differences include vulnerability to external market forces and ethnic homogeneity. I then review evidence on the impacts of these policies and institutions. While the interventionist model appears to cause lower levels of wage inequality and high levels of job security to incumbent workers, it also in some cases leads to the relegation of new entrants (disproportionately women, youth, and immigrants) as well as the less skilled to temporary jobs or unemployment. Making labor markets more flexible could bring these groups into the regular labor market to a greater extent, at the expense of higher levels of economic insecurity for incumbents and higher levels of wage inequality. © 2011 by the Association for Public Policy Analysis and Management.     

POLLUTION LIABILITY INSURANCE AND THE INTERNALIZATION OF ENVIRONMENTAL RISKS

This paper summarizes conceptual and empirical research on the effects of using private insurance as an instrument for regulating the risks of the chemical cycle. The paper reviews the following issues: (1) the institutional choices in regulation activities that may cause latent damage; (2) the insurability of pollution liabilities; and (3) the actual problems with using the pollution liability insurance market as a regulatory tool.     

Mental health and substance abuse insurance parity for federal employees: How did health plans respond?

A fundamental concern with competitive health insurance markets is that they will not supply efficient levels of coverage for treatment of costly, chronic, and predictable illnesses, such as mental illness. Since the inception of employer-based health insurance, coverage for mental health services has been offered on a more limited basis than coverage for general medical services. While mental health advocates view insurance limits as evidence of discrimination, adverse selection and moral hazard can also explain these differences in coverage. The intent of parity regulation is to equalize private insurance coverage for mental and physical illness (an equity concern) and to eliminate wasteful forms of competition due to adverse selection (an efficiency concern). In 2001, a presidential directive requiring comprehensive parity was implemented in the Federal Employees Health Benefits (FEHB) Program. In this study, we examine how health plans responded to the parity directive. Results show that in comparison with a set of unaffected health plans, federal employee plans were significantly more likely to augment managed care through contracts with managed behavioral health "carve-out" firms after parity. This finding helps to explain the absence of an effect of the FEHB Program directive on total spending, and is relevant to the policy debate in Congress over federal parity.     

Cream‐Skimming,Parking and Other Intended and Unintended Effects of High‐Powered,Performance‐Based Contracts

As performance‐based contracting in social welfare services continues to expand, concerns about potential unintended effects are also growing. We analyze the incentive effects of high‐powered, performance‐based contracts and their implications for program outcomes using panel data on Dutch cohorts of unemployed and disabled workers that were assigned to private social welfare providers in 2002 to 2005. We employ a difference‐in‐differences design that takes advantage of the fact that contracts gradually moved from partial performance‐contingent pay to full (100 percent) performance‐contingent contracting schemes. We develop explicit measures of selection into the programs and find evidence of cream skimming and other gaming activities on the part of providers, but little impact of these activities on program outcomes. Moving to a system with contract payments fully contingent on performance appears to increase job placements, but not job duration, for more readily employable workers.     

DYNAMIC SCORING OF TAX REFORMS IN THE EUROPEAN UNION

In this paper, we present the first dynamic scoring exercise linking a microsimulation and a dynamic general equilibrium model for Europe. We illustrate our novel methodology analyzing hypothetical reforms of the social insurance contributions system in Belgium. Our approach takes into account the feedback effects resulting from adjustments and behavioral responses in the labor market and the economy‐wide reaction to the tax policy changes essential for a comprehensive evaluation of the reforms. We find that the self‐financing effect of a reduction in employers’ social insurance contribution is substantially larger than that of a comparable reduction in employees’ social insurance contributions.     

Managing Markets for Public Service: The Role of Mixed Public–Private Delivery of City Services

The privatization experience of U.S. municipalities shows declining use of complete contracts and a dramatic rise in mixed public–private delivery (joint contracting) of city services. The analysis here shows that city managers have recognized the need to move beyond a simple dichotomy between market delivery and public planning to an approach that balances concerns with efficiency, market management, and citizen satisfaction. The New Public Management stresses the importance of competition and efficiency, transaction costs economics emphasizes the challenges of contract management, and New Public Service assigns primary concern to citizen engagement. Nonetheless, city managers see the need to balance all three. The analysis shows the evolution of a middle position where city managers integrate markets with public delivery and give greater attention to citizen satisfaction in the service delivery process.     

What determines the value of life? a meta‐analysis

A large literature has developed in which labor market contracts are used to estimate the value of a statistical life (VSL). Reported estimates of the VSL vary substantially, from less than $100,000 to more than $25 million. This research uses meta‐analysis to quantitatively assess the VSL literature. Results from existing studies are pooled to identify the systematic relationships between VSL estimates and each study's particular features, such as the sample composition and research methods. This meta‐analysis suggests that a VSL range of approximately $1.5 million to $2.5 million (in 1998 dollars) is what can be reasonably inferred from past labor‐market studies when “best practice” assumptions are invoked. This range is considerably below many previous qualitative reviews of this literature. © 2002 by the Association for Public Policy Analysis and Management.     

Crowd‐Out or Affordability? The Lifeline Expansion's Effect on Wireless Service Spending

Public subsidization of private goods often leads to crowd‐out, reducing private spending. This effect is intended for a policy such as the 2008 Lifeline phone subsidy expansion, which aimed to increase affordable access to services. I examine the effects of this policy on households’ self‐reported wireless phone service spending in the Consumer Expenditure Survey. Using state‐level variation in policy implementation and triple‐differences event study methods, I estimate that the expansion reduced households’ wireless service spending by more than 100 percent of subsidy payments. I document that the expansion led to a separate, competitive market for providers catering to low‐income households. Consequently, higher‐quality subsidized services crowded out lower‐quality unsubsidized options, saving households more than an equivalent cash transfer. This highlights how market segmentation and competition can magnify a targeted subsidy's impact.