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An Evolutionary Model of Bargaining, by H. P. Young (University of Maryland)

Individuals from two populations of bargainers are randomly matched to play the Nash demand game. They make their demands by choosing best replies based on an incomplete knowledge of the precedents, and occasionally they choose randomly. There is no common knowledge. Over the long run, typically one division will be observed almost all of the time. This "stochastically stable" division is close to the Nash solution when all agents in the same population are alike. When the populations are heterogeneous, a generalization of the Nash solution results. If there is some mixing between the two populations, the stable division if fifty-fifty. Journal of Economic Theory, February 1993, 59(1): 145-168. (Reprinted with permission of Academic Press, Inc.)


The Ethical Implications of the Straight-Commission Compensation System--An Agency Perspective, by Nancy B. Kurland (University of Pittsburgh)

This paper examines the role of the straight-commissioned salesperson in the context of agency theory and asserts that because the agent acts to benefit two principals, potential conflicts of interest arise. Temporal differences in receipt of rewards create a major conflict, while the firm's exhibition of both espoused and actual behaviors and information asymmetries intensify this conflict. Finally, in light of these inconsistencies, the ethical implications of the straight-commission compensation system are examined. Journal of Business Ethics, October 1991, 10(10): 757-766. (Reprinted with permission of Kluwer Academic Publishers.)


Comparing the Calibration and Coherence of Numerical and Verbal Probability Judgments, by Thomas S. Wallsten (University of North Carolina), David V. Budescu (University of Illinois-Champaign), and Rami Zwick (The Pennsylvania State University)

Despite the common reliance on numerical probability estimates in decision research and decision analysis, there is considerable interest in the use of verbal probability expressions to communicate opinion. A method is proposed for obtaining and quantitatively evaluating verbal judgments in which each analyst uses a limited vocabulary that he or she has individually selected and scaled. An experiment compared this method to standard numerical responding under three different payoff conditions. Response mode and payoff never interacted. Probability scores and their components were virtually identical for the two response modes and for all conditions. The two response modes differed in that the central response category was used more frequently in the numerical than the verbal case, while overconfidence was greater verbally than numerically. Response distributions and degrees of overconfidence were also affected by payoffs. Practical and theoretical implications are discussed. Management Science, February 1993, 39(2): 176-190. (Reprinted with permission of Management Science.)

Nonparametric Tests for Mixed Poisson Distributions, by Jacques Carriere (The University of Manitoba, Winnipeg, Canada)

Consider a portfolio of insurance policies where the mean frequency of claims for each policy may vary. This heterogeneity of risk in the portfolio may be modeled as a distribution function F(|Lambda~) on the mean frequency |Lambda~. This paper will present nonparametric tests of hypothesis about F(|Lambda~), given the observed claim frequencies |N.sub.i~ for i=1,...,T from a portfolio with T policies. Throughout the discussion we will assume that |N.sub.i~ has a mixed Poisson distribution with a mixing distribution F(|Lambda~) that are estimable and it will also present nonparametric estimators of these parameters. The paper will also present some tests for the assumption that |N.sub.i~ has a mixed Poisson distribution. Insurance: Mathematics and Economics, February 1993, 12(1): 3-8. (Reprinted with permission of North-Holland Publishing Company.)

The Transformed Rejection Method for Generating Poisson Random Variables, by W. Hormann (University of Economics and Business Administration, Vienna, Austria)

The transformed rejection method, a combination of the inversion and the rejection method, which is used to generate non-uniform random numbers from a variety of continuous distributions, can be applied to discrete distributions as well. For the Poisson distribution a short and simple algorithm is obtained which is well suited for large values of the Poisson parameter |Mu~, even when |Mu~ may vary from call to call. The average number of uniform deviates required is lower than for any of the known uniformly fast algorithms. Timings for a C implementation show that the algorithm needs only half of the code but is--for |Mu~ not too small--at least as fast as the current state-of-the-art algorithms. Insurance: Mathematics and Economics, February 1993, 12(1): 39-45. (Reprinted with permission of North-Holland Publishing Company.)

A Stochastic Interest Model with an Application to Insurance, by Hans M. Dietz (Humboldt-Universitat, Berlin)

The paper presents a general model for valuating a (random) cash-flow subject to (random) interest payments in a semimartingale setting. In particular, the current value of an initial unit capital is expressed by means of the Doleans exponential of the underlying interest process. The results are discussed in a stochastic process model proposed for (one-claim) insurance contracts. Insurance: Mathematics and Economics, December 1992, 11(4): 301-310. (Reprinted with permission of North-Holland Publishing Company.)


The Probability of Ruin for the Inverse Gaussian and Related Processes, by F. Dufresne (Laval University, Quebec, Canada) and H. U. Gerber (University of Lausanne, Switzerland)

We consider a family of aggregate claims processes that contains the gamma process, the Inverse Gaussian process, and the compound Poisson process with gamma or degenerate claim amount distribution as special cases. This is a one-parameter family of stochastic processes. It is shown how the probability of ruin can be calculated for this family. Extensive numerical results are given and the role of the parameter is discussed. Insurance: Mathematics and Economics, February 1993, 12(1): 9-22. (Reprinted with permission of North-Holland Publishing Company.)


Utilization Control in HMOs, by Larry Debrock and Richard J. Arnould (University of Illinois at Urbana-Champaign)

Health Maintenance Organizations (HMOs) have emerged as a major vehicle to reduce transaction costs associated with defining the limits of health insurance coverage and to provide appropriate provider incentives. This article explains the heterogeneous set of incentives used by HMOs to reimburse providers and performs empirical tests of their effectiveness. The empirical analyses reveal that utilization of health care services is reduced when (1) physician compensation is based on salary or capitation arrangements rather than some measure of output; (2) bonuses and paybacks are based on individual rather than group performance; and (3) when the HMO operates as a proprietary (for-profit) organization. Utilization is not significantly affected by incentives placed on the hospital. Finally, physician ownership of the HMO was found to lead to higher levels of utilization. Quarterly Review of Economics and Finance, Autumn 1992, 32(3): 31-53. (Reprinted with permission of the Quarterly Review of Economics and Finance.)

Economic Disability and Health Determinants of the Hazard of Nursing Home Entry, by Alvin E. Headen, Jr. (North Carolina State University and Duke University)

A Cox proportional hazards model was used to estimate economic determinants of the conditional probability of first nursing home entry during a 34-month period for a panel of disabled older persons who resided in the community at the initial survey. Allowing for death that competes with first entry and end-of-survey censoring produced the following results. Wealth significantly reduces the hazard of nursing home entry. The price elasticity of the hazard of nursing home entry is estimated to be -0.7. Also, nursing home entry is positively related to the opportunity cost of informal caregiver time faced by the family. The Journal of Human Resources, Winter 1993, 28(1): 80-110. (Reprinted with permission of The Journal of Human Resources.)


Social Security: Does the Wartime Dream Have to Become a Peacetime Nightmare? by Alec L. Parrot

This year sees the fiftieth anniversary of the Beveridge Report and the fortieth of ILO Convention No. 102, two landmarks in the history of social security. In the author's view both documents represented a genuine attempt to give effect to the wartime aim of social security for all, but since then a combination of circumstances has obscured both the clarity of the objective and the range of policy choices available to governments in pursuing it. Primary responsibility for the welfare of the individual and the family has passed from the individual to the State, and today whatever is spent on social security is regarded as public expenditure. It is time for a rethink of what social security really means, and how it can best be attained. International Labour Review, 1992, 131(3): 367-386. (Reprinted with permission of the International Labour Review.)

An Evaluation of Alternative Methods of Taxing Social Security Benefits, by P. J. Harmelink and J. F. Speyrer

This article examines the advantages and disadvantages of various proposals to tax Social Security benefits, including their impact upon representative taxpayers. For each taxpayer, the authors determine the present values of remaining lifetime tax liabilities under these alternative methods of taxation. After comparing the taxpayers' relative burdens under each proposal and describing necessary steps for implementation, the authors evaluate the effects of each approach according to four criteria: equity, administrability, economic incentives, and revenue neutrality. A cost recovery system, while increasing taxpayers' absolute burden somewhat, has some real strengths when compared with current treatment and the other proposals. Journal of Post Keynesian Economics, Fall 1992, 15(1): 3-30. (Reprinted with permission of the Journal of Economic Literature.)

The Effect of Social Security on Labor Supply: A Cohort Analysis of the Notch Generation, by A. B. Krueger and J. S. Pischke

This article uses aggregate birth year/calendar year level data derived from the Current Population Survey to estimate the effect of Social Security wealth on the labor supply of older men in the 1970s and 1980s. The analysis focuses on measuring the impact of the 1977 amendments to the Social Security Act, which created a substantial, unanticipated reduction in Social Security wealth for individuals born after 1916. This differential in benefits has become known as the benefit notch. Results indicate that labor supply continued to decline for the "notch babies" who received lower Social Security benefits than earlier cohorts. Journal of Labor Economics, October 1992, 10(4): 412-437. (Reprinted with permission of the Journal of Economic Literature.)


Corporate Pensions and Government Insurance: Deja Vu All Over Again? by Peter A. Abken (Federal Reserve Bank of Atlanta)

Is federal government insurance of private pension plans, provided through the Pension Benefit Guaranty Corporation (PBGC), in danger of requiring bailout? This article focuses on private defined-benefit pensions that could wind up on the PBGC's balance sheet. The author gives an economic analysis of the agency's operations and the growing concern that taxpayer funds may be needed to fulfill its obligation as guarantor of private pension claims. The discussion points out similarities and differences between the problems with government pension insurance and the well-known problems with deposit insurance. Economic Review, March/April 1992, 77(2): 1-16.

The Market Response to Pension Plan Terminations, by H. Fred Mittelstaedt (University of Notre Dame) and Philip R. Regier (Arizona State University)

This study, which analyzes stock returns associated with the announcement to terminate overfunded defined-benefit pension plans, differs from prior research by considering both the role of the replacement plan and prior anticipation of the termination by shareholders. These innovations enable us to (1) evaluate the use of the reversion amount (plan assets minus termination liabilities) as a measure of wealth transfer from plan participants to shareholders, and (2) resolve inconsistencies across prior studies regarding the existence of a significantly positive market reaction at the termination announcement.

The results suggest that stock returns at the time of termination are affected by the form of the replacement plan and, to a lesser degree, market anticipation. The results are consistent with investors' using future salaries to value pension liabilities prior to termination. Analysis of the replacement plan and comparison of the reversion amount to the theoretically derived wealth transfer suggest that inconsistencies across prior studies principally result from including firms that continue defined-benefit coverage after termination. In addition, the results help explain why previous studies documented small changes in market value relative to the reversion amount. The Accounting Review, January 1993, 68(1): 1-27. (Reprinted with permission of The Accounting Review.)


Interest Randomness in Annuities Certain, by A. De Schepper (University of Antwerp) and F. De Vylder (Universite Catholique de Louvain, Belgium)

In the present contribution, a model is presented which can be used when interest rates are random for annuities certain. Expressions for the probability generating function, as well as for the corresponding density functions are obtained for the present value of future payment streams. The paper presents the first application of a series of applications of some ideas explained in a former paper entitled 'A stochastic approach to insurance cycles' by Goovaerts, et al. (1992). Insurance: Mathematics and Economics, December 1992, 11(4): 271-281. (Reprinted with permission of North-Holland Publishing Company.)

Some Further Results on Annuities Certain with Random Interest, by A. De Schepper (University of Antwerp) and M. Goovaerts (Katholieke Universiteit Leuven, Belgium, and University of Amsterdam)

In a former contribution, the authors indicated how interest randomness in annuities can be modelled by means of Wiener processes or path-integrals. In particular, an expression was given for the Laplace transform when time is exponentially distributed. In this contribution we will derive the moment generating function and the moments as well as the distribution function for annuities certain. Insurance: Mathematics and Economics, December 1992, 11(4): 283-290. (Reprinted with permission of North-Holland Publishing Company.)

The Laplace Transform of Annuities Certain with Exponential Time Distribution, by A. De Schepper (University of Antwerp), M. Goovaerts (Katholieke Universiteit Leuvan, Belgium, and University of Amsterdam), and F. Delbaen (Vrije Universiteit Brussel)

By means of Wiener processes, randomness in interest rates for annuities can be modelled. This paper wants to give an expression for the Laplace transform of annuities certain, when time is exponentially distributed. Insurance: Mathematics and Economics, December 1992, 11(4): 291-294. (Reprinted with permission of North-Holland Publishing Company.)

The Impact of Government Social Security Payments on the Annuity Market, by Simon Power (Carleton University, Ottawa, Canada) and Peter G. C. Townley (Acadia University, Wolfville, Canada)

This paper analyzes the impact of government social security payments to retirees on the overall average expenditure on annuities per retiree. More specifically, we examine how increasing levels of social security payments 'crowd-out' the private sector annuity market. We also investigate the implications of outlawing gender discrimination in this market. The particular model we utilize is motivated in large part by the Canadian experience, but the results hold more generally. Insurance: Mathematics and Economics, February 1993, 12(1): 47-56. (Reprinted with permission of North-Holland Publishing Company.)


Whose Interests Do Hired Top Managers Pursue? An Examination of Select Mutual and Stock Life Insurers, by Mark Kroll (University of Texas at Tyler), Peter Wright (Memphis State University), and Pochera Theerathorn (Memphis State University)

In this article theoretical and empirical explorations that have addressed the question, Whose interests do top managers pursue? are synthesized and grouped under two categories. Based on the review of the literature, three propositions are tested on two groups of organizations--mutual insurers and stock insurers. The results of the study lend support to the premise that top executives do not necessarily act in the best interests of owners. Journal of Business Research, February 1993, 26(2): 133-148. (Reprinted with permission of Elsevier Science Publishing Co., Inc.)


Ambiguity and Liability Negotiations: The Effects of the Negotiators' Role and the Sensitivity Zone, by Cynthia S. Fobian (University of Iowa and Starr and Associates) and Jay J. J. Christensen-Szalanski (University of Iowa)

This research applies the Einhorn-Hogarth ambiguity model to a two-party negotiation situation involving medical liability cases. In the first study, subjects who were assigned to the role of a defendant or a plaintiff in a medical liability case altered their out-of-court settlement offers according to the estimated likelihood of winning the case at trial, the amount of ambiguity associated with that estimate, and the importance of the case (p |is less than~ .05). As predicted by the Einhorn-Hogarth model, the effect of ambiguity on defendant subjects facing a potential loss differed (p |is less than~ .05) from its effect on plaintiff subjects facing a potential gain. The second study used the model to show that increasing the amount of ambiguity in negotiation situations can make the potential for a settlement less sensitive to parties having substantially different perspectives of their chances of winning at trial. These predictions were supported in an actual negotiation context. When each party had a very different estimate of the plaintiff winning the trial (p = .20 vs. p = .80), there were two to five times more settlements when there was much ambiguity than when there was little ambiguity (p |is less than~ .001). These results provide further support for the Einhorn-Hogarth ambiguity model. They also show that contrary to popular belief, increasing ambiguity in a negotiation context can increase the likelihood of a negotiated settlement. Organizational Behavior and Human Decision Processes, March 1993, 54(2): 277-298. (Reprinted with permission of Organizational Behavior and Human Decision Processes.)
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Author:Myers, Phyllis Schiller
Publication:Journal of Risk and Insurance
Article Type:Bibliography
Date:Jun 1, 1993
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